Rate Update May 28, 2009

Fixed Mortgage Rates are up again from yesterday.

Mortgage Backed Bonds lost 206 basis points yesterday as many lenders had as many as THREE price changes for the worse.  Yesterday was the worst one-day loss in Mortgage Backed Bond prices since October.  The main reason for this onslaught is Supply.  As the Treasury continues to auction off Billions of Dollars of new bond supply, there just hasn’t been enough demand to purchase it all up and prices are dropping fast.  The Fed is still a buyer in this market as it has been for the past 6 months purchasing Mortgage Backed Securities, but it is not enough to keep up with the supply. 

Today Mortgage Backed Bonds are trading slightly higher but this is hardly good news after the loss that has been taken over the past week.  As bond prices dropped so much yesterday, they broke through many levels of support.  These old levels of support may now turn into resistance levels, making it that much more difficult to get interest rate improvements in the coming weeks.

Current Outlook: Cautiously floating as the damage has been done, but if bonds start to tank again when another $26 Billion of 7 year notes are auctioned off this afternoon, it could get ugly.