Mortgage backed securities (MBS) managed to have a decent rally yesterday following treasuries to lower yields.  In total, MBS improved by over a half a point which allowed lenders to reprice for the better.  Most lenders improved pricing by about .25 in discount, but did not pass along all of the gains.  What that means is if a certain mortgage rate was costing 1 point, after the reprice it would only cost you .75 points.   The bigger winner yesterday was US treasuries.  The benchmark 10 year treasury improved by a full point which moved the yield they pay from a opening high yield of 3.30 to close under 3.20.   The current trend of MBS following treasuries to a lesser extent appears to be continuing.  Meaning, when treasuries improve, MBS should also improve but not by as much. 

After a steady trend of improvement yesterday, MBS are trading in a choppy fashion this morning following the release of the trade balance numbers.  The Department of Commerce reported that the US trade deficit widened from last month to -$27.6 billion which is in line with most economists’ expectations.  US exports fell by 2.4% while our imports fell by 1.0%.  It appears that the worldwide recession is lessening the demand for US exports, which is not good news for our economy.   After the report was released, MBS moved off the lows of the day and are currently trading slightly lower that yesterday’s close. 

No other significant reports will be released today, but tomorrow the week starts to heat up with economic data that historically has moved the markets.    You can check out my blog from yesterday, Click here, for a complete list of upcoming economic reports and their significance to mortgage rates.   I suspect that today’s trading action will take direction from the stock market.  A rally in equities could lead to investors selling lower yielding fixed income investments such as MBS and treasuries, to free up cash to invest in higher yielding stocks.   Currently, the dow is near unchanged levels while the benchmark 10 year treasury note is trading at a yield of 3.18.

Most lenders should offer 4.625% to 4.875% as the par interest rate for a 30 year conventional rate mortgage for the best qualified consumers.  Early reports show some lenders offering incentives for consumers with FICO scores over 740 and loan to values under 60% which is pegging 4.5% as the par interest rate.   Consumers with lower FICO scores will have to pay higher fees to secure the lowest mortgage rates, or can elect to take a higher interest rate. 

For intraday updates to the movement of MBS, click over to the MBS Commentary blog.