Long Beach, CA. Equity market is doing the yo yo today as we were down on Tuesday, up on Wednesday and we are down over 200 points on Thursday.  Bond market is imitating the same thing.  Bond market opened favorable and now has turned negative in the last 30 minutes.  30 year fixed rate mortgages are now worse .25% in price from yesterday.  Housing Starts and Building Permits fell more than anticipated to record lows as credit continued to become less available; weekly jobless claims printed at a 26-year high. LIBOR is now at 2-week highs due to concern that policy makers are running out of options to stem the financial crisis. Right now, the futures market is pricing in an 86% chance that the Fed keeps rates somewhere between 0 and .25% until at least April 29th, 2009. Currently, the Ten Year yield is at 2.52% (2.47% yesterday).  There is no relevant economic data scheduled for release tomorrow, so I would not be surprised to see more weakness in bonds and pressure in mortgage rates. It is becoming clear that the market is quite concerned about the amount of debt that the government will need to sell to meet goals that the new administration is expecting

Regarding our interest rates.  Remember we have an artificial market.  Our only buyer of mortgaged backed bonds is the Federal Government.  The New York Fed continues to buy mortgage-backed securities, although today's amount is not known. Origination still appears to be in the $1-2 billion/day range. Certainly this has helped keep conventional mortgage rates somewhat low, although the market wonders if they government is the only buyer out there. Mortgage security prices are back to where they were two weeks ago, at best, but our investors have changed their profit margins to slow down lock volumes, or make up some profit ground for losses suffered in 2008. As one Wall Street firm put it, "The current MBS market is not about convexity or extension issues. It's about the Fed's commitment to keep the 30yr mortgage rate as close to 4.50-5.00% as possible for as long as possible...if Treasury rates climb, the Fed will be forced to buy $10-12BB a couple days in a row vs. their recent pace of $3-5BB per day."  But when they run out of money to buy - what then.  That is part of the dilemma the market is asking itself.  Time will tell. 

Contact Kirk Mulhearn for all of your mortgage needs at:  562-989-4608 ext. 110

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