Wednesday, March 11, 2009

Trading activity in the mortgage market is very quiet so far in this morning's early going. The only scheduled event mortgage investors have to deal with today is the Treasury Department's auction of $18 billion worth of 10-year notes. The government will be accepting bids on this offering through 1:00 p.m. ET. As has been the case since the start of the year - the trend trajectory of Treasury yields and mortgage interest rates will likely be most strongly dictated by trading action in the stock markets. Higher stock prices will tend to put upward pressure on government debt returns and mortgage interest rates while lower stock prices will tend to be supportive of steady to perhaps fractionally lower rates across the board.

Any threat (at least temporarily) of sharply higher mortgage interest rates will be muted by the roughly $310 billion of buying power the Fed controls for the direct purchase of mortgage-backed securities. Fed Chairman Bernanke is prepared to instruct his agents to retard any sharp upward movement of mortgage rates by entering the mortgage-backed securities market as aggressive buyers. So far the Fed has effectively spent $190 billion in this manner - holding mortgage interest rates at lower levels than they would have otherwise been without the Fed's intervention. This mortgage-backed security purchasing authority for the Fed was established as a temporary counter-weight to the upward pressure the massive $2 trillion+ of new incoming supply from the Treasury will undeniably exert on mortgage interest rates.

Speaking of mortgage interest rates - the Mortgage Bankers of America reported this morning that as mortgage interest rates flirted with near record lows their mortgage application index, with includes request for both purchase money and refinance loans, edged 11.4% higher during the week ended March 6th. Purchase applications were 7.1% higher for the period while refinance applications climbed 13.3%