Yesterday, mortgage backed securities, the investment vehicle that determines mortgage rates, had a very strong day. MBS moved steadily higher throughout the day and made higher highs and higher lows.  As MBS improved in price, consumer borrowing costs steadily decreased.  The days action can be best summarized with a GRAPH .   Yesterday's strong session has allowed lenders to lower borrowing costs by .125 to .250 discount points. Well qualified borrowers should be able to attain a par 30 year fixed conventional mortgage in the range of4.625% to 4.875%.


As far as economic data goes...this morning the Mortgage Banker's Association of America (MBAA) released their Weekly Application Activity Report. The purchase index jumped higher by 11% the week of April 3rd while the refinance index moved higher by 3.2%.  This report is not a broad market mover but it is nonetheless a positive to see purchases increasing considering the glut of housing supply on the market.  


At 1pm eastern the US Treasury will auction off $35bn 3 yr notes.  The added supply of debt may pressure treasury yields higher which could cause MBS to follow.   When I speak of yield and price, keep in mind that they are inversely related.  As price moves higher, yield moves lower and as price moves lower, yield moves higher.  As a mortgage professional, I want the price of MBS to move higher which results in lower mortgage rates. 


Lastly, the minutes of the last Federal Open Market Committee meeting (where our country’s monetary policy is decided) will be released.  Most of the information in the minutes will already be known, but investors will still read through it thoroughly for any hint on future monetary policy.


Yesterday’s mini rally in MBS can probably be attributed to weakness in the stock market.  Investors sold stocks and moved the money over to fixed income.  We are in the beginning stages of corporate earnings season. Over the last few weeks, investors have shown some optimism mainly due to the G20 rhetoric and the relaxing of mark to market accounting rules, but a weak earnings season may bring them back to reality.  Alcoa, the largest aluminum producer in the US reported last night it’s first back to back quarterly loss since 1994.  If the Dow continues to move lower, MBS should continue to see improvements.


So far this morning, MBS are holding onto the gains from yesterday.  Early reports from fellow mortgage professionals are showing lenders rates to be slightly improved this morning.