Monday, September 22, 2008

Mortgage Market Watch

Mortgage Market Watch by Mark Arnold

The government's plan to stabilize the financial sector appears to have drawn some renewed confidence around the globe, as Japan's Mitsubishi UFJ Financial Bank is now going to step in and purchase a 10 to 20% stake in Morgan Stanley - this occurs just days after rumors swirled that Morgan Stanley might be another Wall Street casualty. Stocks have strengthened on the news and this is pressuring Mortgage Bonds lower so far today.

It will take some time for the financial sector to work through the liquidity issues and there will be some more ugly stories, so the Trading environment for both Mortgage Bonds and Stocks will remain volatile. One thing to consider, the Fed's moves to make capital easier to acquire can be viewed as inflationary - this may be why we are seeing commodity prices soar this morning, while the US Dollar is under selling pressure.

Oil, at $107 per barrel, has quietly climbed $15 per barrel in the last four days, ever since the Fed stepped in to help the financial sector. This climb in Oil could weigh on Stocks at some point. The 200-day Moving Average for Oil lies at $111.93 per barrel, so it will be interesting to see how prices behave as they approach this ceiling.

Mortgage Bonds are trading right near support at the $100.00 level. Should prices close below this floor, it is likely that the Bond will drop down to test a strong floor of support at the 200-day Moving Average, presently at $99.51. As we have been saying recently, we still view the Fannie and Freddie news as being beneficial to rates in the longer-term - but with so much volatility and uncertainty in the financial markets, there will be bumps along the way.

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