Have you metChad?
FNMA 4.0% : SLUMPED 78 bps…after being down for most of the session. 10 year t-notes PLUMMETED nearly 200 basis points.
DOW: YIKES…down 226 points. Financials took a beating today after some success yesterday. (Bank of America and Morgan Chase down EIGHT percent)
Why such a beating?
1. Hedge Fund effect: Hedge funds reportedly divested of huge amounts of mortgage backed securities and bonds today…which added to the erosion in MBS pricing.
2. Foreign participation: foreign participation was about normal in the HUGE auction (below) but foreign money SMELLS something fishy gang. The $819 BILLION solution is shrouded in mystery and keeps changing in character…but is very obviously two things: 1. Inflationary: it waters down the money in our economy. 2. Riddled with what could be construed as "swindle." Example: funding for "contraception" was at one time included as an "imperative" to help stimulate the economy…
3. Supply: $30 Billion worth of 5 year t-notes hit the market with a chilly reception…we did have about normal (34-ish%) foreign participation.
4. Investors cashing in: to preserve profits from the last few days.
DJIA 8,149.01 -226.44 NASDAQ 1,507.84 -50.50 SP500 874.09 +28.38
Perspective: (Thanks Renee Gaugler for sharing this insight with me today!) In looking at the purchase habits of the feds over the last few weeks we see that they are buying the heck out of 5% and 5.5% mortgage bonds…
SO: Since these bonds "back" 5.5% to 6.0% mortgages: This is actually supporting a "ceiling" of interest rates. The "ceiling" is in contrast to the initial impression that they were going to keep rates ridiculously low for as long as possible. The strategy has turned from "creating" low rates to "maintaining" low rates.
Many still feel that the 4.5% rate was a target…and created by massive purchasing of the 4% mortgage bonds (the LOWEST available mortgage bonds). Rate increases that could result from inflation, lack of foreign participation, lack of market appetite for mortgage backed securities among other causes will be curbed at the 5.5-6% range as a result of this strategy.
Also: feds suggested recently that they may continue the "purchasing" of mortgage backed securities past June…which was the original pull-out date.
Haveagreatday,
--
Chad Schauers
Have you metChad?
MetLife Home Loans
406.522.0922
406.522.0924 (fax)
1924 W. Stevens, Ste. 202
Bozeman, MT 59718
Cell: 406 799 8613
ccschauers@metlifehomeloans.com
