Rate Update December 29, 2009

Mortgage rates are unchanged from yesterday.

Bond supply is still at the forefront of our outlook.  Yesterday the US Treasury auctioned off $44 billion in 2-year notes.  Although demand was not as strong as in previous weeks it was considered to be good given that many trading desks remain unmanned for the holiday.  Today the treasury will auction $42 billion in 5-year notes and tomorrow another $32 billion in 7-year notes.  The longer durations compete more directly with interest rate influential mortgage-backed bonds (MBS’s) so we’d like to see strong demand.

This morning’s Case-Shiller Home Price Index report showed home prices continued declining on a year-over-year basis in all 20 of the major metropolitan areas in 2009.  However, month to month gains were recorded in Phoenix, San Diego, San Francisco, Portland, and Seattle.  You can download the full report here.

Mortgage rates have made a substantial move higher in the past 2 weeks.  However, keep in mind that the markets have been thinly traded because many market participants have been away on holiday vacation.  From a technical standpoint MBS’s are oversold.  We are going to shift to a floating bias with the hopes that we see modest improvements in the new year.

Current outlook: floating bias