Rate Update March 12, 2010

Mortgage rates are starting the day priced modestly worse from yesterday.

Mortgage-backed bonds (MBS’s) got off to a bad start this morning trading lower on a better than expected retail sales report.  The Commerce Department’s monthly report on retail sales showed that they increased in the month of February by .3%.  Analysts had been expecting a weak reading because of poor weather.

MBS’s actually pierced below technical support in early trading but have since found support at the 200-day moving average.  MBS’s were supported by a worse than expected read on consumer confidence from the University of Michigan survey.

At this point MBS prices are trading right at critical technical support.  Should the market close below the 200-day moving average I’d expect rates to increase by .125%-.25% next week.  However, should MBS prices rebound and reverse higher I expect rates to remain at current levels.

I have been recommending a locking position for a while now so this move higher shouldn’t catch anyone by surprise.

Current outlook: locking bias