Yesterday afternoon mortgage-backed bonds rallied pushing 30 year fixed rates down to 5.875% (.25% lower than where they started). However, mortgage backed bonds are trading lower after hitting the 40-day moving average. If you watched yesterday’s rate update then you know that mortgage-backed bonds have traded amazingly consistent with technical trading patterns over the past month.
In addition to technical trading pressure, more news about “margin calls” is pressuring mortgage rates higher. The Carlyle Group announced today that it would not be able to meet margin calls to lenders. In short, this announcement indicates the likelihood of greater supply of mortgage-backed bonds in the marketplace over the coming days. If you remember back to Economics 101, greater supply creates lower prices. In this case lower prices leads to higher rates.
If you’d like to read up on why margin calls leads to higher mortgage rates please read my blog posting from March 7th– “Margin Calls”.
We still have reason to believe that once confidence is restored in mortgage-backed bonds that rates will move lower in the long-term.