Mortgage Rate Analysis
Here is a quick update about the bond market.
It’s now earning season. The earnings are not bad and the banking industry is getting a lift earlier today in the stock market. But the economy needs to create jobs.
Bernanke testifies today and tomorrow at Capitol Hill. The stock market tanked after his statement that the economic outlook is “unusually uncertain”. As a result, the bond market went up sharply. Check out the intraday chart of the Fannie Mae 30-year bond (4.5 coupon). The red circle is the sharp rise after Bernanke’s statement was released.
Technically, the bond market is in an up trend. Here is a chart of Fannie Mae 30-year bond (4.5 coupon):
The two red lines represent the range that the bond is trading in. Thanks to Bernanke, the bond closed above the upper line, which is good news for those looking for lower interest rates. The bond is inversely proportional to mortgage rate (when one rises, the other falls).
Here is an explanation of this bond from Trulia.com :
Fannie Mae Rates are determined by pricing and yields on Fannie Mae Mortgage Backed Securities. Simply put these are bond issues backed by Fannie Mae Mortgages.
There are various Fannie Mae Mortgage Backed Security coupons being traded daily and they are 4.0 coupon, 4.5 coupon, 5.0 coupon, 5.5 coupon, and the 6.0 coupon. These investments are traded just like regular stocks and bonds on Wall Street. The buying and selling of these Mortgage Backed Securities will determine how secondary pricing deparments will determine current daily pricing which will determine available fannie mae mortgage interest rates.
When traders start buying up Fannie Mae Mortgage Backed Securities the price increases and the yeild decreases. This will typically spur the secondary pricing departments at various lenders accross the county to increase the pricing at a particular rate, or improve rates. The actions they take depends on the net price increases on the underlying Fannie Mae Mortgage Backed Securities at a particular coupon rate.
The opposite is also true when traders start selling off Fannie Mae Mortgage Backed Securites forcing secondary to decrease pricing on delivery of a particular Fannie Mae Mortgage Rate, or increase Fannie Mae Mortgage Rates. Again, their actions depend on the net price decreases on the underlying Fannie Mae Mortage Backed Securites at a particular coupon rate.
