Special Report
Monday November 15, 2010 9:05 PM ET
By John Sauro
In light of today’s dramatic losses in the Bond Market, I thought it important to write this brief report on what exactly is happening to Mortgage Bond prices and Mortgage Rates and what to look for moving forward.
Mortgage Bonds fell 119 Basis Points before finishing the day down 109 basis points. There is seemingly no bottom for Bonds. When Bonds tried to mount a come back during the todays trading session, they touched the 200-day moving average resistance level and then fell further throughout the day. As I said in today’s Alert, Bonds have more room to fall before the next floor of support, 100 Basis Points lower.
The 109 basis point loss is the equivalent of .50% increase in mortgage rates. The rule of thumb is; mortgage rates move .125% for every 22 basis point movement in the price of Bonds. If you have been reading my “Market Update”, this fast moving market should come as no surprise. I have been warning that when the market turns it can turn ugly very quickly, as it has.
Rates for 30 year fixed rate jumbo mortgage went from 4.25% back on November 4th to 4.75% today.
The good news is that rates are still historically low and there may be a possibility for a reversal.
Today’s crazy trading created a Bullish Inverted Hammer Pattern on the Bond Chart (see chart below). This pattern could be signaling a reversal. We will need to wait for tomoorow’s trading session for confirmation.
What this means is; in a market demonstrating a downtrend- like we are seeing now, bulls can rally price up momentarily-like they did today. But not strong enough to close above the days open. Typically, this could mean a more sustainable bullish rally. This reversal trend can be confirmed by a bullish move the next day. As I said, this needs to be confirmed tomorrow.
However, if prices open and move lower, that will mean that the down trend will continue and the next floor of support is 100 Basis Points below current levels.
So, there may be an opportunity to lock into rates recently seen in the market, but don’t hold your breath to long. My advice is to lock into any sign of improvement in rates. I’ve said it before; don’t gamble a guaranteed saving to save a little bit more.
Watch your email for updates and be ready to lock in.
Bond Price Chart
Mortgage Rates Move Inversely of Bond Prices
