Talk about giving the mortgage market some direction... Along with the latest Fed rate cuts down to a range of 0% to .25%, they gave the MBS (Mortgage Backed Securities) market quite the lift we have all been waiting for in the form of an announcement that they would purchase large quantities of Mortgage Bonds and would expand their purchasing program in the future.
This language brings confidence back to the MBS market and helps in setting value in MBS currently being traded, which will lead to improved pricing and lower mortgage rates.
This made for a nice rally on Tuesday afternoon in the MBS markets which led to the lowest rates we have ever seen on Wednesday morning. We briefly saw the notorious 4.5% rate on the 30 year fixed conforming, until there was some profit taking and the MBS markets dramatically sold off shooting interest rates up about .25%.
This morning, the MBS opened up relatively flat, then had a downward swing only to finish up the day 16 bps up after the stock market took a beating on bad economic news. (Remember that bad economic data is typically good for the bond market).
With the speculation that the manufacturing sector will continue to contract with the announcement that the automakers have made that they will either be halting production or extending holiday shutdowns to match production with lagging demand will depress the stock market which could help out bonds and ultimately lead to lower mortgage rates.
While we don't ever wish harm on anyone, we are keeping our fingers that interest rates do continue to drop which can lead to "refinance-made stimulus packages" and the increase of real estate purchases.
We will have to see what Friday and the new Holiday week brings...
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