Rate Update March 4, 2010

Pricing on mortgage rates improved modestly yesterday afternoon.

Blackrock Inc., the world’s largest money-management firm, announced yesterday that they would be increasing their asset allocation of US Treasuries in their client’s portfolios due to an uncertain economic outlook.  This is a perfect example of a “flight-to-quality” trade where investors purchase relatively “safe” US Treasuries because other investments carry too much risk.  The additional demand helps drive down interest rates.

A day after Greece unveiled their plan to cut its budget deficit they auctioned off €5 billion in 10-year notes.  The auction was met with favorable demand but that has a lot to do with the fact that they are paying an addition 3% of interest above comparable German notes.

None of the economic data released today missed expectations and therefore the markets continue to trade sideways ahead of tomorrow’s jobs report.  The market is already expecting weak jobs numbers (70,000 in jobs losses and unemployment @ 9.9%) so a soft number is not likely to improve rates.  From a technical standpoint mortgage-backed bonds are overbought so I expect rates to move higher before they move any lower.

Current outlook: locking bias