Overseas markets got our week started on the bearish side, singing new lyrics to Bob Seger’s “Night Moves.” The Nikkei fell to its lowest level since 1982 as a trio of British banks, HSBC, Lloyds, and Barclays fell to double digit losses. Concerns of toxic assets holdings and how far the government will go to bail them out did the damage. Treasury auction supply and a steepening yield curve have done the damage to our mortgage pricing.
Currently, stocks are making a rebound from earlier losses, now down 27 on the Dow. The 10 year note is pressing 2.92%, down 24/32’s on the day. Mortgage backed securities have followed suit, although performing better than expected as the Fed is in buying MBS to prop up the market. Currently, lower rates (4.75%/4.875%) are off 12/32’s while the higher rates are off 8/32’s. No news today and really very little as the week rolls on. For the most part, volume is low and spreads are tightening, giving the feel of more range trading to come instead of a new directional trend developing.
The pullback today, has taken the market back to the 38% fibo level, represented by a yield mark on the 10 year note of 2.92%. Good support lies between that level and 2.97% (bottom of the recent range). For the bulls to get going and give us better pricing, the yield will need to breech 2.83%, which would improve the near term outlook considerable. For now, expect the market to rattle around between the two extremes just mentioned. The ace in the hole will be stocks. If they rally, we will see worsening mortgage pricing. If they falter, expect the best levels we’ve seen in pricing to return. Call it neutral/bearish as the “Week Moves.”