Current Interest Rates – Week of 8/20/12

Signs of some economic growth push mortgage interest rates and treasury yields higher.  Technical indicators have helped us guide our clients to lock ahead of the big market swings.  Make sure you understand what technical signals will be driving rates going forward.

What happened with interest rates last week?

Mortgage backed securities and interest rates started the week clinging to resistance at the 50 day moving average.  This support level had been tested for three consecutive trading days as the mortgage bonds dipped down to and even below that level, but managed to hold support at those levels.  While the support levels were tested, we changed our guidance to let clients know that any move below the 50 day moving average would trigger an alert to lock.   Low and behold, Retail Sales were released on Tuesday morning showing the largest gain since February and the first gain in 4 months.  Stocks rallied and mortgage backed securities started to plummet as the support line at the 50 day moving average was breached, causing the mortgage bonds to face a 3 day sell-off of over 100 basis points, rates going up near .25%.

While these technical signals help guide our approach to mortgage backed securities and interest rates, we can learn similar trends on the stock and equity side of the market that help us better predict what may be coming on the bond side.  Amidst the blood bath in the mortgage backed security market, the S&P 500 has rallied but seems to be running out of steam at 4 year highs and a resistance level of around $1420.  Having attempted to break through these levels on two previous occasions, the S&P 500 now shows the forming of a “Triple Top”.  This means that since the S&P 500 has reached these levels twice previously and has yet managed to break through the resistance, a third failed attempt would further establish this ceiling of resistance and could drive stocks lower in a hurry.  Any movement in this direction should allow for funds to flow back into our bonds and mortgage backed securities.

The new support level for mortgage backed securities that we will be watching closely is one established by the 100 day moving average.  This support level has managed to hold since March of this year.  Having been tested four straight trading days, the support of the 100 day moving average seems to be holding strong, hopefully placing a short term cap on the rising interest rates in this volatile market.

What’s coming up this week on the economic calendar and what’s the impact on interest rates?

On the back of last week’s report heavy calendar, all eyes and ears will be on the FOMC minutes scheduled to be released on Tuesday August 21st at 1 pm CT.  As usual, the markets will be waiting to hear if there is any mention of further quantitative easing.  The Fed has plenty of data to analyze and support further easing, but will likely hold off until, maybe after elections?

Fundamentally, there is not a whole lot out there to say that interest rates should climb much higher.  The Euro Crisis continues to erode the finances of the European Union with the ECB still being rumored to step in and help “cap” Bond yields by taking on some of the debt load.  While our US economy has shown some signs of growth, the major components still seem to be lacking much progress.  All the while, a negative political climate is blanketing the airwaves, highlighting the apparent flaws in any of our candidates.  The end result of this kind of environment would typically sustain and promote lower interest rates, but how low do we expect them to go?

Here’s our strategy for the days and weeks ahead…

Mortgage backed securities have been in the midst of one of the largest sell offs in years, which says a lot given what our economy has been through in the last 5 years.  A simple reminder to show you that the markets can move in an instant, and a worthy incentive to our clients to be in a relationship with a mortgage planner or lender that can help guide you through the process.  The support at the 100 day moving average has shown strength and should help keep our interest rates from going much lower in the near future.  Clients that are closing in the coming days-weeks, we are still recommending that they lock in their interest rate to take advantage of improved pricing from the end of last week.  Clients closing in the coming weeks and months, we recommend to cautiously float.  The 100 dma has held strong but with time on our side, we would like to see if any of the lost ground can be made up.  In the event pricing deteriorates and falls below the 100 day moving average, we will immediately be shifting to a locking position.  Things could get ugly fast.

We maintain an ongoing dialogue with our clients about the market and interest rates throughout their financing experience so we can take advantage of the lowest rates when they present themselves. We all want the lowest rate, and the best way to ensure that you get the lowest rate, is to build a relationship with your mortgage planner, so they can best advise you on when to lock in your rate. Call us today for a complimentary mortgage review or Apply Online.