Market Commentary:
The trend trajectory of mortgage interest rates this week will once again be most influenced by world news headlines – specifically those headlines surrounding hot spots of civil unrest in the Middle East, the Japanese earthquake-tsunami-nuclear disaster, and the resurgent financial crisis in Europe. These headlines are almost certain to create a major tug-of-war in the credit markets.
Anchoring one side of the market will be investors who strongly believe companies who have
insured Japanese lives and assets will soon find it necessary to begin selling large parts of their
Treasury and mortgage-backed securities portfolios to generate the cash reserves necessary to pay major claims and begin the arduous task of rebuilding the country. If these expectations prove accurate, mortgage interest rates will likely advance to higher levels.
Opposing this group of market participants will be those who believe social unrest in the Middle
East and the growing financial crisis in Europe will cause massive amounts of foreign capital to
flow into the relative safe harbor of dollar denominated assets like Treasury debt obligations and mortgage-backed securities – a decidedly mortgage interest rate neutral to friendly outlook.
I’m not sure which of these two groups will ultimately prevail – but I can tell you that my technical models are flashing an increasing number of signals suggesting it would be a
mistake not to convert “floating” loans to “locked” should the price of the Fannie Mae 4.5% 30-year fixed rate mortgage-backed security fall below the 102.125 price level on a closing basis. In times of great uncertainty -- control your risk tangibly.
