Wednesday, July 8, 2009

Thanks to the 10yr!!!

Fixed-income investors have been doing a DAMN good job of absorbing all the supply the government has been pumping into the market place this week. Yesterday's 3-year note auction result was decent - just not as strong as at the previous auction of these securities. But...Today's Treasury 10yr sell of the 19 billion was reflected a 3.365% yield was a home run!

This is critical for many reasons. What this shows me is the lack of confidence investors have in a near term rally. This is great for mortgage pricing. Many of those refinance transactions which fell out of many pipelines will come back in play.

As for the equities, the Dow will find a bottom (between 8200 and 8130) from which to launch a counter-trend rally before the market close on Friday afternoon. If my assessment proves accurate, rising stock values will tend to produce fractionally higher mortgage interest rates as investors move capital (out of the relative safety of Treasury obligations and mortgage-backed securities) into riskier but higher yielding investments such as stocks.

The Mortgage Bankers of America released their seasonally adjusted index of mortgage application activity for the week ended July 3rd this morning. The MBA's total application index rose 10.9% during the latest reporting period after slumping last week to its lowest level since November. Refinance applications were up 15.2% while purchase application activity posted a more modest gain of 5.34%. The average 30-year mortgage rate stayed at 5.34% last week. That was up from the record low of 4.61% in late March but well below the year-ago mark of 7.04%.