Here's an excerpt from a mid day update yesterday:

"consider that the massive sell off in the DOW could be viewed by some as an over-reaction.  Any stock friendly news tomorrow could make the rubber band snap back.  Conservative play here is to lock tonight."

Apparently someone else thought the reaction was overly exuberant.  Traders in fear of recession did not get what they wanted yesterday and the DOW plummeted.  Bernanke's statement didn't give traders the confidence they wanted that he and the FOMC would take a strong enough stand against recession.  He decided to do that this morning.

Along with the European Central Bank and several other European national banks, the FED announced that it will make billions in liquidity available immediately to stimulate the economy and ease the global credit crunch.  The money will be made available in several 20 billion dollar auctions.  Although this plan must have been in the works well before the market response of yesterday, the choice to release the information this morning has had quite an impact.

This is much more in line with the "reassurance" that traders were hoping for yesterday.  The fed either had to cut rates by .5% or come out with  a much stronger statement regarding the economy and inflation.  Neither happened.  So today's announcement is analogous to the FED saying "despite what happened yesterday, we WILL, in fact, do whatever it takes to keep the markets as healthy as possible."

 Traders thought so too and teamed up with some other economic data to give mortgage rates a double whammy.  The DOW is up 165 at 10:41 EST.  In addition, import prices rose slightly higher than expected which is not inflation-friendly.  Though the import news is not devastating, when combined with the reassurance from the FED and the market's reaction in stocks, Mortgage Backed Securities have given back almost all their gains from yesterday.  Rates have returned to near Monday's levels.

Though most lenders have not yet posted their rate sheets, our best lenders have only dialed back .375-.5 cost.

30 YEAR FIXED NOTE RATE : 5.75%-5.875% (CLOSEST TO PAR)

LOCK COMMENT: The next two days are fully loaded with economic data that can move bond rates.  In the wake of the unprecedented actions of the FED, in conjunction with massive differing opinions on the economy, no one knows exactly what to expect.  The conservative move is to lock short term.  If you are more bearish, like me, on the impending economic data, floating is recommended until we get some more information tomorrow and the next day.  I believe rates have farther to fall in the mid to long term (a feeling which I may revise if market data surprises me with unexpected strength).

 

 

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