The Fed Starts Buying Mortgage Bonds
The Fed began buying Mortgage Bonds again on Tuesday. Many fund managers followed the Feds lead as yields on Mortgage Bonds are significantly better than Treasuries. This helped Mortgage Bond prices, which helps to lower mortgage rates.
Also helping Mortgage Bonds was the terrible Jobless Claims Report on Thursday, as 500,000 people filed for unemployment benefits for the first time, higher than the expected 475,000. This is the highest reading since November 2009.
Wall Street Journal Op-ed piece by Jeremy Siegel
Respected Economist Jeremy Siegel wrote a piece in the Wall Street Journal, entitled “The Great American Bond Bubble”. He warns about the current rise in Bond Prices and cautions that investors getting in at these levels are “courting disaster”. He points out that capital losses to bond holders could be more than three times the current yield being paid, if the 10-Yr Note yield rises back to the 4% seen in April. History has shown that interest rates can move up sharply and Jeremy’s warning should serve as an omen to those who have sat on the sidelines too long, betting on mortgage rates moving lower.
Where do we go From Here?
Mortgage Bonds lost 38 basis points to close at 100.31 on the 3.50% coupon as of today’s close. This will put lenders in a position to increase mortgage rates. More importantly, we can’t ignore the technical signals, that suggest higher rates ahead for the short term.
Chances are we will see the sell off in Mortgage Bonds continue on Monday. Will they recover in the coming days? Stay tuned.
Our bias continues to be locking into Mortgage rates here.
FNAMA 3.50% Coupon – $100.31 -38 bp