Why is that? Watching a mortgage bond is like watching "little pieces" of mortgages being sold and how well they are being received by the market. The reason we watch one that is a half point or so lower than the current rates is because those most closely represent the current mortgages. We want to watch bonds closely related to CURRENT mortgages because they represent the "market" for those mortgages when they are securitized.
A FNMA 4.5% 30 year bond for instance represents a fixed rate 30 year mortgage that has been funded for around 5%. Maybe an oversimplification but: the "originators" of that mortgages taking a profit off the top and the fees associated with securitization etc represent about 1/2 point off the interest rate. When a 5%-ish mortgage hits the secondary market: it is sold off in little pieces as 4.5% bonds.
Empire State Index came in at 19.11 vs expectations of 30.00. What is it? A number based on surveys of a couple hundred executives in manufacturing who do business in the New York State area. The survey tracks items like how many orders are coming in, what kind of expense is involved with the production of their goods, how many hours their employees are working etc. All that is boiled down into an index. 19.11 vs. 30.00 is pretty low...and pushes money into safer and longer-term investments like bonds. However: it was pointed out to me that the "expense" is UP to levels not seen for almost 2 years and inflation at the manufacturing level hits the streets on the retail level in a few months. Inflation is not generally good for stocks or bonds as investors want to shore up against overnight loss in portfolio value by losing CURRENCY value. The other element pointed out to me: They appear to be hiring. The employment index is at the best levels seen in six years! This is really good news and could prove to be great news for the stock market over the next few days.
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Chad Schauers
Montana Mortgage Lender, Bozeman, Montana
Personal Cell: 406 799 8613
Personal Email: metchad@gmail.com
