Rate Update September 23, 2009

30 year fixed rates have remain unchanged for the past 5 business days as mortgage-backed bonds (MBSs) continue to trade within a tight trading range (which we pointed out in out in last Thursday’s ‘rate update’).

We are watching the same two things that we outlined in yesterday’s ‘rate update’.

The Fed will wrap up their two-day monetary policy meeting later today.  They are widely expected to leave short-term interest rates unchanged.  However, mortgage rates may react to any indication on the fate of the TALF program as it relates to MBS’s.  Should the Fed indicate that they are going to discontinue open market operations in the MBS markets mortgage rates would likely rise.

The US Treasury is set to auction a record $40 billion in 5-year notes.  Should demand be weak for treasuries MBS prices would also be effected pushing rates higher.

We think that rates could move modestly lower from here but that the risks of them moving higher are more prevalent.

Current outlook: locking bias