Boing! Bonds Bounce Back Beautifully.

By
Mortgage and Lending with Guaranteed Rate NMLS# 2611 NMLS #208860

ball bounce What goes down must come up!  OK, so maybe the housing market still has a way to go before the media proclaims a full recovery, but for the day, rates have taken a turn for the better.  The FNMA 5.5% Bond is up a whopping 50 basis points and that is a huge bounce off the lows from Wednesday.  What is driving this comeback that rivals Sylvester Stallone in Rocky III?

Fear.  Jobless claims are up.  Housing starts are down.  When investors operate in fear mode, the bond market does very well since they are guaranteed a rate of return.  Which begs the question: What are people most afraid of right now?  If you can answer that, then you can begin to understand the mind of the clients we deal with everyday.

Are they afraid of making a wrong decision?  Of losing money?  Of regret?  What do you guys think?

Comments (2)

Dan Forbes
Bradenton, FL
Michael, I hope people are most afraid of Hillary (LOL). Thanks for your post.  I like it when you help the consumer understand what such movement means to them.  They don't understand what happens to mortgage rates when the bond market moves.  So, what do the points you mention mean to the consumer.  Great.

By the way, when looking at localism.om you have the top mortgage professional spot in Manatee County, Florida.
Dec 28, 2007 02:46 AM
Mike Tullio
Guaranteed Rate NMLS# 2611 - Sarasota, FL
VP of Mortgage Lending

Thanks Dan.  I guess after teaching Beowulf to 17 year-olds for 12 years, you get pretty good at making material relevant.  The basis points are basically fractions of percentage points above or below PAR.  If I buy a bond at PAR, I am paying 100% of it's value.  For discussion's sake, let's say I buy a FNMA 6% bond for $100.  I spend $100 and get paid the interest while I hold that bond.

If the market for bonds is hot, then FNMA may price their bond at 100.25, so as an investor, I am paying a little more for my $100 bond.  .25 more, or 25 basis points more.  100 basis points = 1%.  If stocks are hot and bonds are tanking, I may pay 99.75 for a $100 bond.

Pretty simplistic overview, but what it means for the consumer is that if we are down in basis points, the lenders make that up in raising their rates.  If we are up basis points, rates go lower.  Again, a pretty basic summary, but hopefully it covers your question.

Thanks for the update on my localism.com ranking.  I have plenty more questions for you on embedding other people's blog posts among other things, but I'll save them for when you get back.  Have a good one!

Dec 28, 2007 03:02 AM