Below is an update from my business associate Jeff Harding at Wells Fargo Home Mortgate. Visit his website at http://www.IowaMortgageGuy.com
MMG Update – Tuesday, April 28, 2009 10:25am ET
Current Trend Direction: Higher
Risks favor: Locking Bias as Prices Test Ceiling
Current Price of FNMA 4.0% Bond: $100.66, +12bp
Bonds enjoyed a good day yesterday, but are off the best levels of the morning after testing and pulling back from overhead resistance at $100.75, the closing high of March 18th. This ceiling of resistance may prove difficult to break and with the floor of support at the 25-day Moving Average quite a ways beneath current levels – it is prudent to get your clients locked here. Remind your clients that we are now within .125% of the best rates in our nation’s history, and each time prices get up near these levels, they have pulled back lower and home loan rates have moved higher.
The swine flu outbreak has taken center stage of all the news headlines, and the flight to quality helped give Bonds a boost yesterday, while weighing on Stocks. Late yesterday, the World Health Organization raised its alert level on the swine flu to Phase 4 from 3 on a scale of 1 through 6. Phase 4 indicates a sustained human-to-human transmission.
This morning, the government “stress test” for banks indicated that Bank of America and Citigroup may need to raise more capital. While this is no major surprise, it is somewhat contrary to their recent favorable earnings reports.
At 1:00pm ET today, the Treasury will auction off $35B in 5-year Treasury notes. Yesterday’s auction wasn’t a stellar performance, but the flight to quality on the swine flu scare helped buoy Bond prices. We may not see the same buying support this afternoon.
In a curious move by the administration, it was decided that Air Force One and a fighter jet fly over New York City for a photo opportunity. While the White House has already apologized, this eerily similar to 9/11 event wreaked havoc throughout Wall Street and disturbed Air Traffic Control in the New York area.
A very bright economic headline came by way of Consumer Confidence, jumping to 39.2 in April from 26.9 in March – the fourth largest gain in the history of the survey. The jump is no doubt a result of the huge improvement seen in the Stock market since addressing mark-to-market accounting. The health of the Stock market is critical to consumers mindset regarding purchases…especially home purchases.
As we have discussed, it is often wise to lock near ceilings of resistance, as more often than not, prices tend to pull back from these levels. With prices there right now, today presents a good time to show clients the Bond page, and how close prices are to the best levels ever. And more importantly – how previous tests of this level have resulted in pricing losses.
