Then came Ben, giving a speech at the Kansas Fed meeting in Jackson Hole Wyoming.  Stock traders were looking for a policy statement change.  Don’t know why as it wasn’t the right place or time.  What they got was a 17 page speech of old news.  Statements about battling deflation, low mortgage interest rates for and extended period of time, and using every tool if the economy deteriorates further is all they got.  Consequence, stocks tank and bonds rally.

Trouble with that market move is that it didn’t last long.  Once again, value buyers emerged in stocks, taking the Dow up over 100 points as we speak.  Treasuries and mortgage backs have taken a turn for the nurse, down 31/32’s on the 10 year note while current coupon MBS are off 12 to 16/32’s.  Whether this is mortgage bankers unloading August originations or just fixed income traders taking profits, no one knows.  We do know that and end of day close at higher yields (current pricing) will neutralize all bullish trend intensity signals on all time frames (60 minutes through Weekly).

We see this as an early warning sign that risk reward is not in your favor, Austin mortgage borrowers.  Overall sentiment and economic fundamentals will continue to support a low interest rate environment but not without corrections and volatile conditions.  Technically, the price action looks like a topping formation so be very careful out there.  Use the live dog instead of the dead lion school of deciding when to lock in your Austin mortgage rate.  It makes for a better night’s sleep!

Some blame this on a large hedge fund liquidation (2 billion) that swapped MBS for treasuries.  Others comment on 3 billion of new origination paper that hit the street today.  Part of the whip lash seems to be coming from traders reading the tea leaves of the Housing Summit.  Comments by Bill Gross that Pimco wouldn’t buy a mortgage security unless the government backed it or if they did, they would require a minimum of 30% down payment.  Other comments range from having FNMA/FHLMC reduce all current mortgages to 4.0% as a stimulus measure for the economy.  How would you like to be invested in a few billion of 4.50% or 5.0% paper and take a hair cut to 4.0%?  Talk is also cheap about what to do with FNMA and FHLMC.

Moving towards a private structure has been estimated to increase rates by 300 bps.  Once again, what would you do if you had a few billion of MBS paper?  At the market one day, 300 bps in the hole the next.  Obviously, most of this is lunacy but just the same, its scaring the H E double hockey sticks out of the investment community. Markets hate uncertainty.  That’s why they run for cover.  Best to grab a flack jacket until some sort of sanity returns.

Case in point is the continuing spread widening between mortgage backs and treasuries.  Currently, the 10 year note is plus 10/32’s yet MBS are DOWN 9/32’s.  To be honest, this is very strange and must have a fundamental money flow issue behind it.  Trouble is, we just don’t know what that is.  Be very careful out there.  More as we get our arms around this.

Currently, the Dow is off a smooth 200.  The Naz is not much better, off 60 points.  10 year notes are plus 20/32’s and mortgage backs are lagging behind, up 5/32’s.  With the Fed once again the lender and buyer of choice, expectations are that they will purchase 15 to 20 billion a month.  This move will keep Austin mortgage rates low as traders will adopt the old trading slogan, “Don’t fight the Fed”.   In the news, our June Trade Deficit grew 8 billion to a record 49.9 billion.  Imports grew, exports fall, in a simple formula that did the damage.  Once again, this will be a drag on GDP.

We do have an auction today.  24 billion of 10 year notes hit the tape at high noon (cst).  Look for this to be a bullet auction will traders falling all over themselves to buy.  Put up a chart and all you see is a major bull trend.  With the 10 year now at 2.71%, a breakout to lower yields/better mortgage pricing has been confirmed.

In this market, best bet for Austin mortgage borrowers is to take advantage of the historic low levels of Austin mortgage rates.

Technically, the early strength helped to recover from yesterday’s selling.  That has put the chart back into a neutral pattern, allowing the slightly bullish trend to continue on the daily chart.  We came close to our target of 2.88% but no cigar.  Now the market will need to rally soon or this will become just another range trade.  Failure to rally isn’t bad, just paints the chart neutral which will cause Austin mortgage rates/pricing to stay close to current levels.  Kinda like being all dressed up and no place to go.

Treasuries and mortgage backs hung in there, yet pared their gains to present levels of plus 4/32’s (10 year note) and plus 1/32^nd MBS.  Nothing huge to read into but just the same, the follow through buying in stocks is worth notice.  10 year notes will retain their bullish edge (day end trading) but are starting to lack a trend reading.  This typically will tell us that buyers of treasuries still have the advantage but will need a little giddy up go to stay at these levels.  Good time for Austin mortgage borrowers to put both hands on the wheel.

In the glass half full category, Ford, Chrysler, and GM all posted sales gains as that sector starts to stabilize.  Currently, stocks are off 61 points on the big board, 10 year note is plus 8/32’s, and mortgage backs are off 2 to 5/32’s, depending on the interest rate.  As I have talked about in the past, money flows are coming out of foreign sovereign debt and into treasuries.  Trouble is, that’s as far as the money goes.  Risk/reward is moving more and more towards risk in MBS, corporate paper, and anything other than an instrument backed by the full faith of Uncle Sam.  With stocks trading firmly below 1040 on the S&P chart, investors are net bearish, looking for a pull back to 940/970.  That would clip the Dow for 1 large.  Add to it the uncertainty of tomorrow’s Employment Report and all you see is traders with a fist full of scared money.

Speaking of the jobs number, the call is for job losses of 100K.  We’ll preview the report later today.  Given what we know, we see the pull back in mortgage paper (higher Austin mortgage rates,  lower pricing) as nothing more than consolidation, expecting that it will not become a major reversal.  However, we are seeing a divergence set up on the daily chart, telling you that a least a pause is in order until tomorrow’s fireworks begin (7:30 am cst).

With risk reward not in your favor, Austin borrowers are advised to lock in their Austin mortgage interest rates and step aside as we’re not sure whether the light in the tunnel is the end or a train.

Overall, the report does nothing to instill confidence in economic growth.  Matter of fact, it’s started a new group of traders and investors fanning the fires of a double dip recession.  Bill Gross is now calling for unemployment to go over 10% in the coming months.  If there is a silver lining, you’ll find it in low Austin mortgage rates today, tomorrow, and well into the 3^rd quarter.

Adding to the feeding frenzy in treasuries are stories out of Hungary (bad debt jitters), rumors that French Bank Societe Generale has a book of undisclosed bad derivative positions, oil on or near the Florida coast in what is to be the worst oil spill in history, and the Euro hitting new four year lows.  Adding insult to injury, French Prime Minister Fillon is saying he saw only “good news” in parity between the Euro and the dollar.  He must have had a nip of the grape for breakfast.

Cutting to the chase, bonds, note, and mortgage backs are in rally mode, up a point of the 10 year and plus 12 to 14/32’s on MBS.  From an interest rate perspective, buying overnight and post employment report has taken the market above former resistance (119 21 futures/3.34% yield). Daily charts however, have yet to endorse the bullish move and must close above the 8 day moving average and resistance at the old high ( late May level).

Key for you to watch will be a close on cash 10 year notes of 3.26% or lower (currently at 3.24%).  Given a close that betters the 3.26% mark, the bulls will have their way with a new target of 3.09%.  A close at 3.27% or higher will most likely reverse the trend and send us into a consolidation trade.  We’ll try to make “cents” of it later today.

“ I met them at the Treasury store, they told me that they were bad, but I knew they were really glad, that’s why I fell for the Leader of the Pack”.

Treasuries are the big dog on the global market with traders from all corners of world running to them for safety.  Take for example the Treasury International Capital Flows (TIC Index) which measures the purchases of our Treasuries by foreign entities.  In March alone, 108.4 billion were bought, making it the instrument of choice as global debt issues and stock market roller coasters rule the day.  PPI, a measure of inflation at the wholesale level, hit the tape with a benign reading of minus .1% headline and a core print (ex-food and energy) of plus .2%.  Nothing to be scared of here and if anything, a deflationary trend may be setting up due to the global slowdown in Europe.

April Housing Starts also hit the tape, up 5.8% to 672K units.  Not bad except when you look at new Building Permits which dropped 11%.  Still tough sledding for the builders out there.  10 year trading has been volatile this morning as we opened in the red (down 12/32’s) with mortgage backs off 5/32’s.  Stocks have worked their way off the early morning highs ( opened up 80 now up 47), helping treasuries and mortgage backs to boot strap themselves back to unchanged.

USDA UPDATE: In a nut shell, the USDA program is out of money (except for disaster funds in a few areas).  The Senate now has three competing bills so the work out process has begun.  Nothing scheduled on the Senate floor so this could take some time.  USDA issued guidance stating that they would issue condition commitments so we could proceed with the loan process but not close until the program was funded.  USDA has now pulled that guidance to issue conditional commitments.  As you can see, this is a mess.  Investors such as Chase, etc. will not take locks unless you have a conditional commitment or are in a county that has adequate disaster funds available as they see this as hedging a “phantom” pipeline.

Have questions about USDA funds? Call me (512) 293-1239.