Rate Update October 22, 2009

Mortgage rates are slightly higher this morning.

Concerns over Treasury supply next week are weighing on the bond market.  In a few minutes the US Treasury will announce the supply of 2-year, 5-year, and 7-year treasury notes they will auction next week.

Many analysts believe they will auction as much as $115 billion.  Think about that for one second, the US government currently needs to auction $115 billion in treasury securities every two weeks (If you haven’t yet watched the film IOUSA I would highly recommend it).

Extra supply of fixed income securities hurts mortgage rates because the mortgage-backed bond market is required to raise yields in order to attract investors.  Mortgage-backed bonds (MBSs) remain at important technical support.  As long as we can remain here there is a chance rates could improve.  However, safe play is to lock because if MBS prices break this support rates will move sharply.

Current outlook: neutral so long as MBS prices remain at or above technical support, locking long-term