Todays Market Update

Today's Market Update- Friday May 29, 2009, 2:35 PM ET


Current Trend Direction: Bonds Higher/Interest Rates lower


Risks favor: Floating
Current Price of FNMA 4.00% Bond- 98.28 +109 bp


30 Year Fixed Rates
5.00% APR 5.089%


30-Year Jumbo Fixed Rates
5.375% APR 5.466%


5/1 Jumbo Arm
4.50% APR 4.61%


7/1 Jumbo Arm
4.75% APR 4.70%

What a difference a day makes. After loosing 207 basis points on Wednesday, Mortgage Bonds clawed their way back up 37 basis points on Thursday and are currently up106 basis points so far today, thanks to the 200-Day Moving Average floor of support. Yesterday's price improvement has created a Positive Stochastic Crossover. This usually is a sign of a trend reversal from lower to higher. However, bonds will need to repair the recent damage and will be up against resistance.
The massive supply of treasuries was the reason for the losses in bonds. As you may remember from Economics 101, any time supply exceeds demand, prices will move lower. And remember, a lower price in bonds equal's higher mortgage rates. Hopefully, the market will find a balance as lower bond prices attracts more buyers.
We may continue to see improvement, but it will be tough to see rates get back to levels seen last week, due to fundamental and technical reasons.
What many are not aware of is that the Fed is buying treasuries at the same time they are selling them.
What idiot came up with this idea?

With Mortgage rates now above 5%, the Fed may come out with an announcement that they will buy even more Mortgage Backed Securities and longer-term Treasuries to help keep rates low. The Fed does not want the refinance activity and lagging home purchase market to slow down any time soon.

We are currently recommending floating rates here while waiting for improvements to interest rates.