Very early this morning the 10 yr traded at 2.73% -5 bps frm yesterday’s 8 basis point decline. By 9:00 the 10 had found a little support and sat at 2.75% -3 bps, the 30 yr MBS price at 9:00 +19 bps points in price (see below for 10:00 am levels). As previously noted, it is about the stock market. At 8:00 this morning the DJIA was off 80 points from yesterday’s 176 point fall. Also as previously noted as long as the stock market is being pressured the US rate markets will benefit as investors spread investments into the safety of treasuries. The giant in the room now is, is this the long awaited correction investors have been expecting for months, or just jitters over weakening outlooks for China and India?
Trade in treasuries and MBS markets have been breaking one resistance after the other since Jan 10th, this morning the 10 cut through its 100 day average like the hot knife through butter. No hesitation as traders and investors process the potential that stocks may be headed for that 10% correction.
There is no scheduled economic data today
The FOMC meeting next week is the last for Bernanke; although Janet Yellen is on the same page as Bernanke, he still rules (at least theoretically). Bernanke has been very outspoken about the economic growth in 2014 and the belief unemployment will continue to decline. Not only Bernanke but the IMF and other worldly bodies are signaling better economic growth in the US this year. If next week the Fed passes on another tapering the signal to markets would be that the Fed has changed its outlook to a lesser growth forecast; that wouldn’t sit well with investors and likely drive equity markets further down. A taper on the other hand would send a more constructive signal, that the Fed is standing behind better days ahead. If the Fed wants to continue forcing investments into equities it has to taper next week; I believe the Fed has little choice. If the Fed does taper next week as is widely expected, the bond and mortgage markets will increase (rates); the good news though is that any increase won’t set new highs in rates because the declines recently will keep any increases well under the 3.00% strong support on the 10 yr.
Look for an increase in volatility over the next week into the FOMC meeting. The next level of resistance for the 10 yr is 2.70%/2.68%; on the 4.0 FNMA coupon 105.17 (currently 104.38). It is never easy to buck the masses; floating recently has been against the fundamental grain, but right on when focusing on what is actually happening in the markets rather than the talking heads that still old a longer term bullish outlook for stock markets. In the wider perspective they may well be correct but taking their outlook as momentary gospel has left a lot on the table. As we always say; don’t trade on comments, trade with the market action.
I see no reason to lock today and would consider floating your rate all the way up to Wednesdays Fed meeting. After that it will be a wild ride so if your not willing to roll the dice I would lock sometime Monday or Tuesday. Stay tuned and FOLLOW my BLOG for continued advice in the Real Estate and Mortgage Markets in Texas including Houston, Conroe, The Woodlands, Spring, San Antonio, Dallas, & Austin.
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