Commentary: Trading action in the mortgage market is exceptionally thin this morning as investors wait on the side-lines to hear what, if anything, Fed Chairman Bernanke and his fellow central bankers have up their sleeve in the way of additional economic stimulus.
As you are probably well aware by now -- most traders are anticipating the Fed will announce a new bond-buying program nicknamed "Operation Twist." If the Fed does choose to launch such a program the central bank will soon begin conducting a number of special auctions where they buy longer-dated Treasury securities with proceeds derived by selling shorter-dated notes and bills. The buying and selling process would occur over the course of the same day and is intended to push long-term rates - including mortgage rates -- lower. The sources I talk to tell me the initial novelty of this fancy financial footwork may prove supportive of fractionally lower mortgage rates - but the effect will not likely last long. The moral of this story is simple and straightforward - stimulus programs - especially effective stimulus programs - almost always mark the beginning-of-the-end of a move to lower mortgage interest rates. At this juncture, there is nothing currently available to suggest things will be different this time around.
The mortgage market continues to find support from a growing fear Greece may default on their sovereign debt - possibly within the next couple of weeks. A significant amount of international capital has elected to flee European and other global markets for the relative safe-haven of dollar-denominated assets like Treasury debt obligations and mortgage-backed securities. This so-called "flight-to-quality" flow of capital into our domestic credit markets is a condition that tends to temporarily support steady to perhaps fractionally lower mortgage interest rates.
The only macro-economic report on the calendar today showed that housing remains weak - certainly no big surprise to anyone. The Commerce Department reported housing starts for August fell a sharper than expected 5.0% from month earlier levels. Most investors shrugged-off the outsized decline - assuming the number was probably exaggerated by the impact of hurricanes and tropical storms during the reporting period. Building permits filed for future construction increased a better-than-expected 3.2%. Until the rest of the economy improves and the national jobless rate declines notably - traders expected the housing sector to remain distressed.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
