Mortgage Backed Securities (MBS) Under Pressure - Recommend Locking Mortgage Rates

Mortgage Backed Securities (MBS) are being pressured lower today as Stock prices continue to rise. The 10yr  at 9:00 2.77% +2 bp and making another run at key technical levels.  So far it hasn’t been a good week for interest rates and MBS prices, the last two weeks have seen the 10 yr note move from 2.68% on Friday 2/7 to 2.78% early this morning. The FOMC minutes released on Wednesday have added additional concern in the fixed income arena; the Fed holds a positive outlook for the economy this year and isn’t concerned that the recent slowing is anything more than weather conditions that will ebb soon. The FOMC made it clear that the Fed will continue to lessen the monthly purchase of MBS’s and long dated treasuries (taper).

When the minutes of the Jan FOMC meeting were released Wednesday, there was a comment that some of the members were discussing an earlier increase in interest rates than was previously expected as unemployment continues to decline. The comment led to a lot of initial concern in the markets; stocks sold off as did the 10yr and MBS’s.  We were not impressed with the talk as the Fed will hold interest rates at zero to +0.25% through this year and likely into 2015.  

The stock market opened a little better at 9:30 but quickly went negative, then just as quickly reversed again (see below for 10:00 levels). The 10yr yield improved as stock indexes softened, at 2.76% down from 2.78% earlier.

The only scheduled data today, Jan existing home sales expected down 4.3% from Dec, sales fell 5.1% from Dec to 4.62 mil units (ann.), estimates were for 4.70 milion. The median sales price $188,900, +8.1% year over year -  the inventory level increased to 1.9 mil, based on the sales pace there is a 4.9 month supply -  first time home buyers accounted for just 26% of sales, the lowest percentage since NAR has been keeping the data.  But can you believe that the NAR didn’t blame all of the decline on weather.  Instead, they noted very tight credit and affordability.  Tight credit is a result of Washington continuing to try controlling the economy - the affordability issue is due to low paying jobs with no prospects of increases.

The 10yr and MBS’s continue in their narrow ranges.  The 10yr is testing its key averages that still hold and al momentum oscillators are now at neutral levels since here has been no real change in rate markets going on to three weeks now.

Due to the drop below a key technical level, I am recommending to lock, which seems prudent at this time.