Despite a rally in equity markets, prices of mortgage-backed securities moved higher yesterday. No economic data was released, trading volume was very thin, however MBS closed at their highest level since early this summer which allowed some lenders to reissue rate sheets with lower consumer borrowing costs. For the last half of the summer and all of September, prices of MBS have been stuck in a range, yesterday was the first time they closed outside of that range (highest prices since May). We must remind that this occurred in a low volume environment. Also, with the third quarter coming to an end, it is expected that market participants will be adding AAA rated assets to their balance sheets, so we are not too excited about the extent to which this rally continues....YET. We will grow more optimistic if the recent breakout holds when the fourth quarter begins on October 1.

Mortgage rates moved lower a few basis points yesterday after prices of mortgage backed securities steadily appreciated throughout the day. At 5pm, MBS prices were near their highest level in over 4 months. The main driving force of the move higher was a much weaker than expected existing home sales report. Since many believe that the economy will not recover until housing improves, this disappointing report led to investors selling stocks and moving their money into the relative safety of the fixed income market. Currently, MBS prices sit at the very top of the recent trading range that has kept mortgage rates relatively stable over the last few weeks. By days end lenders passed along the best rates we have seen since early summer.

Mortgage rates were mostly unchanged yesterday as the economic calendar was empty and the market settled in for another FOMC statement. Prices of mortgage-backed securities did manage to move marginally higher following a successful auction of 2 year Treasury notes, which saw the highest demand in over a year. The small price appreciations led to scattered reprices for the better as secondary market gains held into the close, however it should be noted that reprices were not significant enough to lower the par conventional 30 yr mortgage rate.

It was an up and down week for mortgage backed securities last week. Despite better than expected economic data, MBS didn’t give up too much ground and mortgage rates did manage to dip to 4.75%. However by week’s end, rates had risen to 4.875% for the best qualified consumers. To remind readers, mortgage rates are determined by the trading of mortgage backed securities. As the price increases, lenders can generally pass along lower mortgage rates. As prices fall lenders offer higher mortgage rates which returns a greater yield to the end buyer of the MBS.

It was a bumpy ride in the mortgage backed security market yesterday. At the open, MBS moved considerably higher and lenders that issued rate sheets at 9am, passed along considerable improvements from the prior day; however, the gains did not last long. Most lenders issue rate sheets around 10am eastern and by that time, MBS had given back all of the early morning gains which lead to the lenders that issued rate sheets early to reprice for the worse. As the day progressed though, MBS did manage to move higher and by the close many lenders repriced for the better. All in all, mortgage rates held steady on the day.

After holding levels not seen since early this summer for over a week, mortgage rates are under some pressure to move higher. Yesterday, mortgage backed securities were lower in price which forced lenders to offer higher mortgage rates. The downward move continued all the way into close which led to some lenders repricing for the worse. MBS, after having been range bound near summer price highs, moved toward the bottom of that range yesterday and has actually fallen to lower levels following this morning's data.

Despite a rally in stocks, mortgage backed securities managed to post nice gains yesterday after a stronger than expected 30 year bond auction. It is not very common to see stocks and bonds both rally on the same day especially when stocks tested their best levels in over three months. Several lenders did reprice for the better following the auction at 1pm as the gains in MBS price held to the end of the day. To remind readers, as the price of MBS move higher, lenders are able to offer lower mortgage rates.