Current Trend Direction: Sideways
Risks favor: Carefully Floating
Current Price of FNMA 4.5% Bond: $101.44, -38bp
Surprise, surprise...volatility will once again be the key word on Wall Street today, as "quadruple witching" day occurs in the Stock markets. Quadruple witching, which happens four times a year, is the simultaneous expiration of market index futures, market index options, stock options, and stock futures. As Traders rush to unwind positions, Stock prices have the potential to bounce around rather sharply. This volatility has already extended to Mortgage Bonds, as Bond prices have also been jostled around quite a bit in the first hours of trading. It should be noted that on the Monday following a quadruple witching, securities prices often times move in the opposite direction from where they headed Friday.
There are no economic reports set for release today - but there was some big news from Japan. The Bank of Japan trimmed their benchmark interest rate from 0.3% to 0.1%, and unveiled a series of new steps to pump more money into the financial system to ease an emerging credit crunch among Japanese companies. Japan doesn't have much more room to cut rates at these levels, so it will be interesting to see how this stimulus impacts their financial markets.
The auto industry finally received some relief this morning, as President Bush just announced a deal that GM and Chrysler are going to receive $13.4B in government loans to keep operating in exchange for a restructuring. Ford has more cash on hand than the other two, and has said it should be able to avoid tapping into federal dollars unless weak auto sales continue longer than expected into 2009. Auto stocks are higher on the news, and this is providing a lift, as well as a sigh of relief to the entire Stock market.
Hopefully, you have taken advantage of the recent alerts and avoided the price erosion as Bonds seem to have tired out a bit since the move higher earlier this week. Don't you remember we built this rally on weak economic news, talks of the Fed purchasing Mortgage Bonds and rock and roll :)...and those factors have not changed, which bode well longer-term.
Again on new transactions, we recommend floating and here's why...prices do have support just beneath current levels and we feel there is a good chance prices could move higher on our aforementioned quadruple witching reversal theory.
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