Rate Update June 12, 2009

Fixed Mortgage Rates are down from yesterday.

Mortgage Backed Bonds are celebrating a good day in the market yesterday with another one this morning.  Bond prices are up almost 70 basis points this morning as the market seems to be reversing for the time being.  The only news that has been released that may have had something to do with this reversal in the past two days is that a successful hedge fund, Paulson & Co. have been reported purchasing Mortgage Backed Securities that are currently priced very cheap after the past few weeks; other investors may have seen this and started to follow suite given Paulson & Co’s successful bet on the housing decline.

The NY Federal Reserve purchased $23 Billion in Mortgage Backed securities last week, but mainly picked up 4.5% to 5.5% coupons, which don’t do much to lower current interest rates…and obviously the volume didn’t do anything to offset the large amount of supply that has been hitting the market.

Though this reversal is welcomed right now in the bond market, I do not see it lasting long and driving rates down to what we have been accustomed to the past 6 months or so.  For now, we can ride this wave a bit longer, but as we all know; things can change quickly so it will be important to be ready to lock in the recent gains.

Current Outlook: Cautiously floating