Meant to post this Austin mortgage update – late yesterday!
As we head into the last half hour of trading, price action has been a one-way affair and looking to close at the worst levels of the day. Mortgage backs are now off over 1 point as the 10 year note trades a 3.85% yield (down 43/32’s). Just for good measure, the 30 year bond is off over 3 points. This has been one of the more dramatic down drafts we’ve seen in some time, reminding us of just how powerful and heartless the market can be.
One thing I’d like to point out is that the market traded 3 handles today, 117, 116, and 115. This is powerful stuff and is rare to see. It also tells us that the masses have abandoned long positions (owning treasuries) until higher yields make re-entry more worthwhile. Next point I would like to make is that we took out the longer term trendline dating back to December 2009. That sliced through at 116 16. After making a low (115 28), the market rally that followed was meager (12/64th) in what traders call a “dead cat bounce”, only to slip to the lows as they turn off the lights. With trading volume 140% of normal, this is not a low volume volatility trade. This move is for real.
Our work suggests that the market is headed for the February low at 115 14 (yield of 3.91%) before any recovery rally will occur. That could easily happen as a result of the 7 year note auction tomorrow. 32 billion of this odd ball duration will be on the block. All, however, is not lost. Once we take another beating and auction the paper, our target objectives should have been met. At that time, the market will reassess and most likely find value given the higher yields. One big reason is something I mentioned a few days ago, the Barclays Monthly Fixed Income index. With duration add needs of .16 years (in English this means fixed income funds must buy treasuries, etc.), the big boys will turn buyers late this week or most likely early next week. That will give you a rally to the bottom side of the trend line (on the chart) I talked about earlier.
I encourage my buyers who have not locked their Austin mortgage rate to do so at that time; that will be the best spot. Going forward, this is quickly becoming a sell rallies market. This should look better in a few days so hang in there.