Rate Update June 16, 2009

Fixed Mortgage Rates are down from Monday.

Mortgage Backed Bond’s recent rally was halted yesterday afternoon at its 200 day moving average.  Currently stocks and bonds are both up against levels of resistance and each movement will likely be dependant upon the other’s success (or failure) in breaking though that resistance level.   If the S&P 500 fall below its 50 day moving average, money could easily flow from stocks to bonds and help push bonds above its 200 day moving average.  If the S&P 500 can rally and break through its 200 day moving average, bonds will likely fall.  The upcoming days will be heavily dependant on the relationship between the stock market and the bond market so it will be important to keep track of both.

Some economic news released today seems to be good news for our industry.  It was reported that housing starts rose 17% in May, and building permits (which are a sign of future construction) beat expectations as well.  These figures were likely caused by low interest rates, low home prices, and tax incentives.  The Producer Price Index was reported to increase .2% in May, much lower than the streets expectations of .6%.  In fact, in the past year the PPI has fallen 5% which is the biggest year over year drop in 60 years.  The main reason for this is that oil is around $60 per barrel now compared to double that this time last year.  Core PPI (after stripping out food and energy) has risen 3% year over year.  These are favorable inflation figures, but as we know all it takes is a bit of an inflation scare to set the bond market on its back and increase interest rates.  

Current Outlook: Very cautiously floating