Commentary: The trend trajectory for mortgage interest rates is caught in a major tug-of-war this morning.
Anchoring one side of the market are those traders who strongly believe Japanese insurers will soon find it necessary to sell large parts of their Treasury and mortgage-backed security portfolios in order to pay the massive claims sure to follow today's earthquake and tsunami - a condition almost certain to put upward pressure on interest rates in general -- and mortgage interest rates in particular. Opposing this group of market participants are those who believe social unrest in the Middle East and the growing financial crisis in Europe will soon ignite a "flight-to-quality" buying spree directed toward Treasury debt obligations and mortgage-backed securities that will prove strong enough to withstand any selling pressure that the disaster in Japan might create.
It is far too early to determine which of these two influences will ultimately dominate credit market conditions - but it is a virtual "sure bet" that next week's Fed meeting and the inflation story waiting to be told in the form of Wednesday's Feb. Producer Price Index and Thursday's Feb. Consumer Price Index will prove to be little more than background noise.
In my experience, during periods when so many cross-currents are at play in the credit markets, it is best to focus on the technical profile of the market. Here the story is much more straightforward. Should the Fannie Mae 4.5% 30-year mortgage-backed security close below a price of 101.687 -- the probabilities are very high that it will continue to fall into the 101.250 to 100.812 price range. Unless or until the 101.687 price level is breached to the downside -- look for mortgage interest rates to trade sideways to perhaps fractionally lower.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
