Technicals are showing signs of possible weakening prices for Mortgage Bonds. The drop in Mortgage rates can be attributed to many factors, one being the weakened Euro. Europeans are putting their money in the US Bonds. However, that may change as rates in Canada are looking more attractive for Europeans since the Bank of Canada raised rates by.25% up to .75% on Tuesday.
Another concern for Mortgage Bonds and Mortgage rates is China’s Reserves which stand at $2.5T. most of these reserves are held in US Treasuries and Mortgage Backed Securities. However, last quarter was the first time in a long while that the Chinese did not increase these reserves. Could it be that China is slowing its investments in US debt?
Mortgage Bonds began their climb on April 6th when they were at $96.18 and finished Thursday at $101.78. Its been quite a run, but as we know what goes up must come down. And, don’t forget that Mortgage Rates move in the opposite direction of Mortgage Bond prices.
Housing Starts fell 5% in June to 549,000, below expectations of 575,000. The latest survey of New Home Sales showed a drop of 33%. in the latest survey. Building Permits did show an uptick, but it was mostly multi-family homes.
Existing Home Sales for June came in at 5.37M, better than expectations of 5.09M, but below May’s number of 5.66M. However the better numbers are influenced by the Tax Credit, which had a deadline of June 30th. So, its likely more closings were scheduled for June in order to take advantage of the Tax Credit.
?
President Obama signed the Financial Reform bill into law Wednesday. Unfortunately, while there are some good points in the Bill, there are also many unintended consequences. One example is that rating agencies won’t allow their ratings to be printed on offering documents. This shut down the asset-backed debt markets on Wednesday as these deals can’t happen without the printed ratings. Ford Motors pulled a financing deal Wednesday night because they couldn’t get a printed rating on their offering.
We maintain our bias towards locking into mortgage rates here.
?
FNMA 4.00% Bond $101.78 -16bp