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Mortgage Market Report 5/17/12: Orange County, CA

This mortgage market report will provide the data and insight from trading on Wall Street. Interest rates are derived from the yield on mortgage backed securities (bonds). When the pricing of mortgage backed securities (MBS) goes up you can expect lower interest rates. When MBS pricing goes down, expect higher pricing on interest rates for home mortgages. 


The top story this morning (besides the Facebook hype) reads, “ECB Pauses Lending to Some Greek Banks.” The European Central Bank will not provide emergency liquidity to banks that have failed to be recapitalized, minimizing its risk.  Recall that the Greek government has already received money from the European bailout fund to recapitalize the banks, but has not yet passed on the money because of disagreements about the banks’ management.  Once the recapitalization has been completed, the refinancing operations will resume.  For now, cut-off banks can access emergency liquidity from the Greek central bank.  On the data front, we had a few releases out this morning.  Initial jobless claims were unchanged at 370k for the week ending May 12th and have continued to trend sideways since the beginning of the year.  The Philly Fed’s May manufacturing survey came in way under expectations, dropping from +8.5 to -5.8, which was the worst print since last September.  Expectations had been for a rise of +10.0, and that was based on forecasts largely made before the NY Fed’s reading earlier this week.  Internals were pretty bad, with negative new orders, a big plunge in the employment index, and a steep drop in the future activity index.  Lastly, the Leading Economic Indicators index slid .1% in April, being the first drop since last September.  Negative contributions came from the month’s contraction in building permits and a jump in initial claims.  

Market Analysis……

It still looks as if bears will have to remain patient until they have some solid confirmation of bullish trend reversals.  Right now, I don’t see anything that would warn of a significant reversal in Treasuries.  What would seal the deal for the bears?  We will have to see a bearish turn in daily and weekly momentum and that would only add to confidence that an unwind of overbought conditions is in motion.  We’re not there yet and it’s worth noting that the bull trend/channel in 10yrs comes in today at 1.88%…. so we’re still some distance away from bearish triggers in Treasuries.  Indeed, the ongoing deposit flight out of Greek banks raises the risk of an imminent Greek exit from the euro (UK Telegraph today).  If some investors share that fear, then dips in Treasuries could prove brief and shallow, as we witnessed in yesterday’s session.  So for now, we’re still stuck near rate range lows with fundamental conditions supporting bond prices, while overbought conditions continue to be a growing headwind for Treasuries.  The 10yr is testing smaller resistance within the overall range at 1.74%, while also bringing Mtg backs up 4 ticks off early morning levels.  We keep the same bias that the current levels are a good sell and you should continue to exercise that lock button with the float down, if applicable.


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