Rate Update October 27, 2010

Mortgage rates are mostly unchanged today.

For the 6th-straight trading day mortgage-backed bonds (MBS’s) appear to be headed for losses which is pushing rates higher.  The culprit?  Speculation regarding QE2.

As I’ve been stating day in and day out the markets are being driven by speculation of the Fed engaging in QE2 specifics of which are likely to be announced one week from today.  When the markets first accepted that the Fed was likely to engage in another round of quantitative easing rates dipped sharply lower on the expectation that the Fed would take aggressive action.  Over the past couple days the market has scaled back expectations for QE2 so that now a more gradual approach is priced in.

This change in outlook has made me more cautious.  The markets tend to overreact to a shift in sentiment so I still believe that it rates could reverse back .125%-.25%.  But, the technical indicators suggest we could have seen the last of 30 year fixed mortgages below 4.00%.

Current outlook: cautiously floating

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