Mortgage backed securities (MBS) added a third day to their recent  losing streak. Yesterday MBS moved lower in price by almost ½ point resulting in a noticeable increase in consumer borrowing cost after most lenders repriced for the worse. The bigger loser was US Treasuries with the benchmark 10 yr note yield moving over 3.50!  In what has been a very consistent pattern over the last few months, as treasuries go so go MBS but to a lesser extent.  Let’s all thank the Fed for keeping MBS much more stable with the $1.25trillion they have pledged to spend on MBS in an attempt to keep mortgage rates at historic low levels.

The reason for the sell off yesterday was a much better than expected consumer confidence numbers.  Apparently, consumers are becoming more and more optimistic about our economy. The Conference Board’s Consumer Confidence index jumped up 15 points, this is the 2^nd month in a row of better than expected confidence numbers.   The idea is that a optimistic consumer will spend more money which will get the economy growing and lead to higher corporate profits.  So, investors sell their low yielding but safe assets, MBS and treasuries, and move their money to higher yielding but more risky stocks.  This is what we refer to as the flow of money, money left fixed income and moved into equities.  It is going to be interesting to see whether this is a head fake or if the economy is truly past the bottom and going higher.  With unemployment approaching 10%, oil and gas prices moving higher and home prices continuing to fall, I find this hard to believe.  We do get another report Friday on how the consumer is feeling with the consumer sentiment numbers. 

First out this morning was the weekly Mortgage Bankers’ Association Applications index which tracks the volume of applications for mortgages at mortgage lenders for both purchases and refinances.  The report came in very close to expectations indicating weak demand for home purchases despite low mortgage rates and very affordable home prices.  However, consumers are taking advantage of the historic low rates with the refinance activity remaining strong. 

National Association of Realtors released their existing home sales data which tracks the number of existing homes, condos and co-ops that sold during the prior month.  Economists surveyed estimated a yearly pace of 4.65 million but the actual number came in just a touch better at 4.68 million which is 2.9% increase from the prior month.  Offsetting this positive news is last month’s numbers being revised worse to 4.55 million from 4.57million.  Most economists agree that until housing stabilizes and shows some consistent improvement, it will be difficult for our economy to improve.

At 1 pm, the Treasury Department will hold its 2^nd of 3 auctions this week, with today’s offering being $35billion of 5 year Treasury notes.  The auction yesterday was received very well with strong foreign/indirect bids but even the good auction couldn’t keep treasury yields from continuing to move higher.   This is the law of supply and demand, with more and more supply coming to market, the price has to fall to attract new buyers which increases the yield they pay the end investor.   The MBS Commentary blog will have full coverage after the auction is completed.  Already this morning, the 2yr note up to the 30 yr bond are all in the red, moving their yields even higher.   Currently, the benchmark 10 year treasury note is trading at a yield of 3.566!  This auction will definitely have an effect on the treasury and MBS market, so check back once the auction is over which will be around 1:10 est. 

Since the release of the economic reports, MBS have lost their appeal and are back in the red once again.  Early reports from fellow mortgage professionals are indicating the par 30 year conventional rate to be at 4.75% today.  If you have been on the sidelines waiting to refinance, you might want to get on the boat before the refinance boom goes to sea.  I do feel it is quite possible for rates to move lower in the next month or two, but if the economy is on an uptrend and continues to improve, then the days of 4.5% mortgages will be gone.   Mortgage rates are still fantastic at 4.75%, so do not miss out on this once in a lifetime opportunity.