Maret Update June 15, 2997

Current Price of FNMA 6.0% Bond: $98 .62, +28bp

Mortgage Bonds are rallying sharply higher this morning. The reversal from the floor we had identified is continuing in full form, and adding even more favorable technical signals by way of a positive stochastic crossover.

Giving Mortgage Bonds some additional help, is the tame read on Core Consumer Inflation. The Core Consumer Price Index (CPI) for May was reported today at 0.1%, which was lower than expectations of 0.2%. Additionally, the year-over-year Core CPI dropped to 2.2%, which is the lowest read in more than a year, and is moving closer to the Fed's target zone for Core Inflation of 1 - 2%. Since inflation erodes the buying power or value of the fixed return that a Bond provides, the news of inflation moving lower is very good news for the Bond market.
And the tame inflation reading is even helping Stocks. In recent days, Stocks had been selling off on the fear that interest rates were going to rise - which could hurt Stocks, as higher rates make it more expensive for businesses to "do business". But after seeing this morning's tame Consumer Inflation read, Stock traders started buying with both fists, driving Stock prices higher this morning as well. Maybe stock traders are seeing a peak in interest rates too. Where's Bill Gross?

Aside from the big headline news of the Consumer Price Index, there were a few other reports released, but their importance and impact paled in comparison to the welcome read on lower inflation.

David Kosmecki
http://www.americanstar.com

Mortgage Insurance

In this video I explain what is mortgage insurance, what it's for and how and why some people will try to avoid it.



Dave Kosmecki - AmStar Mortgage
http://www.americanstar.com/

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Market Update June 14, 2007

Current Price of FNMA 6.0% Bond: $98.28, Unchanged

Mortgage Bonds are backing up yesterday's rally with an impressive recovery today. Prices traded down as much as 16bp earlier in the day, but have since rebounded and made back all of the earlier losses.

Initial Jobless Claims were reported in line with expectations at 311,000 showing the labor market remains stable. The Producer Price Index (PPI) was reported at 0.9%, which was hotter than expectations of 0.6%. However, the Core PPI, which strips out volatile food and energy prices, matched consensus estimates with a 0.2% gain. The overall PPI has climbed 4.1% higher over the past 12 months, but the Core PPI has risen by just 1.6% over the same period. Overall, the year over year Core rate of PPI appears to be an encouraging sign that inflation is moderating on the wholesale level. The market initially reacted a bit negatively to this report, but has since shrugged it off and awaits tomorrow's more closely watched Core Consumer Price Index (CPI). Economists are expecting the Core CPI to be reported at 0.2% for the month of May.

This morning's Bond price reversal higher from the worst levels of the day is a very encouraging sign on the heels of yesterday's rally. We feel that tomorrow's CPI will likely be inline with expectations, which would help Bond prices further stabilize and move even higher.
As you know, we made a major position change yesterday from locking to floating. We are calling for a bottom at the floor we have identified at $97.84. We expect prices to improve further from here and gain momentum from a positive stochastic crossover.

David Kosmecki - AmStar Mortgage
http://www.americanstar.com

Market Update June 13, 2007

Below is an update of the Bond Market today and what it is causing in the mortgage market

Current Price of FNMA 6.0% Bond: $98.09, +9bp
Prices may have finally found a bottom! Back on May 15th, we issued a very important lock alert as prices broke below their critical 200-day MA floor of support. We have often discussed the importance of this floor and how prices had only crossed the 200-day MA twice in over two years. The crossing of the 200-day MA has represented a major change in market sentiment in the past, and last month's break below it was no exception. Since breaking under this floor, prices have now declined by 274bp as of the lows hit this morning! Congratulations to you and your clients for avoiding this debacle.
But we are now finally turning optimistic on bonds!!! Is it because Bill Gross just went bearish? No. It is because the long term floor of support has finally been hit and appears to look as if it may hold and support prices. Mortgage Bonds are showing the early makings of a reversal after opening lower and trading beneath the important long-term support level we had identified to you at $97.84. The Bulls quickly recovered and pushed prices higher and back above this critical floor. Why is $97.84 such a significant floor of support? The Bond's rally last Summer started when prices hit this level back on June 26, 2006. Prior to that, $97.84 also represented a support level dating back to May 2002! This proven strength of support is why we had faith in it's ability to hold prices and stop the bleeding.
Traders appear to be betting on this floor supporting prices, as even a much hotter than expected Retail Sales this morning couldn't pressure prices lower. May Retail Sales soared 1.4% higher, far above consensus estimates of 0.6%, while recording the largest gain over the past 16 months. And seeing the Bond reverse convincingly higher in the face of strong economic news is yet another good sign.
Let's closely watch how the trading day unfolds, but we feel prices will improve. And if the Bond can hold its gains, the start of an improving price trend should be ahead.

Market Update June 12, 2007

Current Price of FNMA 6.0% Bond: $98.28, -34bp

Unfortunately, the Bond is trading lower again this morning. Foreign investors continue to lighten up their holdings of US Dollar denominated assets like US Treasuries and Mortgage Bonds, as global inflation and the fear of foreign Central Bank rate hikes remains the story. Prices have now dipped below their low levels of June 8th, when they began a recovery after a two-day dive.

Here's another very important story to follow - There has been increased talk in the trading pits about Asian investors, particularly those in China and Japan, buying fewer US bonds. If these countries buy less of our Bonds, it would be harder for pricing to improve as they have been huge supporters of our Bonds in the past. Japan and China are the two top foreign purchasers of Mortgage Bonds. We will get to gauge the foreign appetite for our Bonds as the US Treasury auctions $8 Billion in 10-Year Notes at 1pm ET.

Former Fed Chairman and present Pimco Bond Funds consultant, Alan Greenspan will speak about mortgages at 12:30pm ET today. This could be interesting after Pimco's Bill Gross just went on record stating he is now bearish on bonds. And Greenspan has been a bit of an enigma when it comes to advice on mortgages. Among several odd remarks was the famous flip on ARM loans back in February of 2004. Greenspan suggested homeowners should switch to ARM loans and save the difference in rate costs. Then he turned around the very next day in a speech before the Senate Banking Committee and scolded Fannie Mae and Freddie Mac for their dangerous mortgage loan practices. It will be interesting to hear his take on the recent action in the mortgage market.

The trend remains lower and remains ugly. However, there is some hope. If you take a look at the Bond Page, you can see that prices are hovering 10bp above a floor of support. If prices can hold at these levels, they may make another attempt to bounce higher. Additionally, there is another VERY STRONG floor of support at $97.84, or 44bp lower than where we are now. There is a good chance that this floor, labeled S2 on the bond page, will hold.

Market Update June11,2007

As a result of the recent price decline in Mortgage Bonds, we are switching our focus towards the FNMA 30-year 6% Mortgage Bond from the FNMA 5.5% Mortgage Bond. The 6% Bond demonstrates the majority of trading volume and is more closely tied to current market rates. The Bond Page and Text Messaging reflect these changes and you still have the ability to chart the FNMA 5.5% coupon on the Bond Page.

"It's just another manic Monday, I wish it was Sunday" - The Bangles. It seems like the weekend may be the only time Mortgage Bonds don't trade lower as Bond prices are under selling pressure once again this morning. The Bond market is trading lower on news that Japan reported better than expected economic data. Like we saw last week with New Zealand and Australia, global economic growth and inflation risk is causing foreign countries to hike interest rates. And as countries hike interest rates, more attractive yields abroad is causing money to be siphoned out of the US Bond market.

Here's an important story to pay close attention to - in the past we discussed the Yen carry-trade, where traders borrow money tied to the Japanese Yen and reinvest that money in higher yielding investments in countries like the US or Australia. So why is this important? The higher rates offered in the US are attractive to Japanese investors because rates in Japan are far lower. So many Japanese investors are big buyers of US Treasuries and Mortgage Bonds. And while it may seem like getting 5% in the US instead of 1% in Japan is a good and simple strategy there is another moving part that needs to be considered, which is the currency exchange rate between the US and Japan. Lately, the US Dollar is losing ground in value versus the Japanese Yen because the percentage loss of the Dollar vs the Yen has been greater than the additional yields offered in US Bonds, many Japanese have decided to unwind their holdings in the US. This is putting additional selling pressure on our Bond market. Japan is presently the largest holder of US Mortgage Bonds.

There are no economic reports set for release today, but traders will belly-up to a full plate of potentially market moving data later in the week, including Wednesday’s release of Retail Sales; Thursday’s Producer Price Index (PPI) and Core PPI Index; Friday’s New York Empire State Manufacturing Index and the Consumer Price Index (CPI) with its closely monitored Core CPI.

Mortgage Bonds continue to struggle to find stability and put a winning streak together. Market volatility has certainly picked up some serious steam and shows few signs of slowing. With the change in bond market sentiment from “bullish” to “bearish,” traders in mortgage bonds are more likely to sell into any rally attempts, rather than buy into declines, until sentiment greatly improves. This morning’s early market action demonstrates this bearish “sell the rally” mentality and market psychology. Nearest overhead resistance is located at $99.19 while further resistance is found at $99.37. The next long-term support levels are located at $98.16 and $97.84. Unfortunately, the overall trend remains lower, so we will continue to lock until the market stabilizes.