There were several items of rough news for the markets to digest today.  Well, that's rough for Mortgage-Backed-Securities (which govern mortgage rates), but not necessarily rough for the broader market.

  1. As some analysts (and many of the firm's shareholders) predicted, the 2 dollar per share price offered for Bear Stearns is apparently off the table as the new price of 10 dollars per share is being discussed by JP Morgan Chase.  Many felt that $2/share was a "low-ball," with Bear's biggest shareholder labeling the offer as "derisory."  Those outspoken few are vindicated this morning as shares are up over 50%.  This is one of the key factors bolstering Stocks this morning and potentially drawing some money out of the bond market.
  2. The Financial Times reported today, citing analysis from JP Morgan Chase, that there is a historical Precedent of "large firm collapses" being among the final signs that a rebound is eminent.  Analysts argue that, in the past, incidents such as the Bear Stearns collapse, have shortly preceded a market bottom.
  3. Inflation.  The slide in the dollar index combined with more Fed rate cuts and various other factors have the "I" word back on traders' minds.  The evidence for an inflation problem is mounting.  Traders are less likely to buy Mortgage Securities (which would lower rates) when inflation is a concern.
  4. Mortgage rates seem to be encountering resistance.  Each time they have approached 5% on a 30 year fixed, they have bounced higher soon thereafter.  In addition, some note that the S and P 500 has failed to break through the "floor" of a 20% loss from its highs in the last 6 months.  Some view this as further evidence recovery is nigh as a small rally in stocks, as we've seen this past week, is one of the the first indicators of recovery.
  5. Some Investment Banks have been either downgraded, or are reporting write-downs as a result of their mortgage holdings.  Despite that news, the concerted effort to raise liquidity for the mortgage market is evident with last week's landmark announcements of the FED opening up the discount window to non-participating institutions, injecting capital into the mortgage markets by agreeing to buy 200 billion of bad debt from struggling firms.  Fannie Mae and Freddie Mac, the two main institutions that set guidelines, buy, sell, and insure mortgages, have received numerous liquidity measures over the past week.  More money available in the mortgage market means more investors are buying.  This increased competition raises the prices and thus interest rates come down.

But interest rates are certainly not coming down today.  For any given rate available on Friday afternoon, some lenders may be costing as much as 1% more depending on the rate.  The rest of the week is action-packed in terms of market data.

Rates are still historically low, even considering recent history.  Friday just happened to be a great day.  As always, if you like the available rate, it's always safest to lock in a volatile market.  But if you are utterly bearish and convinced that the positive analysts have it all wrong, floating can pay off, especially if you have lots of time.  Remember that rates move in cycles so even if the general trend is up, you still may have to contend with a down cycle if that happens to be where the market is heading in the short term.