The well defined range we have followed to gauge our lock/float sentiment is being challenged. Since the range proved itself a reliable indicator of demand for debt in the benchmark fixed income market, we have advised consumers to lock when mortgage prices were near the high side of the range and to float when MBS prices were at the the low side of the range. Well...this morning the range broke and prices fell through a key level of support. While we are not in panic mode, our preferred indicator of lock/float strategy is being put to the test.  

The week ahead brings us several economic reports and four Treasury debt auctions. Today the Treasury Department will sell $7 billion 5 year TIPS notes, on Tuesday $44billion 2 year notes will be auctioned, $41 billion 5 year notes on Wednesday, and $31 billion 10 year notes  will be offered on Thursday.  As stated on the MBS Commentary blog, while the media has attempted to create drama around macroeconomic data, market traders are not basing their strategies on long term outlooks. Instead, because the economic environment is so hazy,  much of the choppy price action that has been observed is a function of short term supply/demand dynamics.

Today rates are rising because the Treasury Department will auction $123 billion in debt this week.That said, one might ask...Record Treasury debt has been a constant for ten months, rates haven't backed up this much in any of those instance.Why are rates reacting so poorly to this auction cycle?

1. There are no major events scheduled on the data calendar...hence no reason to not sell. Why not push the government's cost of borrowing higher if you can? Higher rates = more investment return!

2. The Federal Reserve's Treasury Purchase Program is coming to an end. As a reminder, this program was initiated by the Federal Reserve at the March FOMC meeting. The Federal Reserve allocated $300 billion in funds to help support the debt markets. Remember this statement...

"Moreover, to help improve conditions in private credit markets, the Committee decided to purchase up to $300 billion of longer-term Treasury securities over the next six months."

Those six months are now over. The interest rates market is now be left to operate without a liquidity backstop in place to ensure demand for US AAA rated debt remains high. Although demand is not expected to wain by much because the economic outlook remains so uncertain, the fact that the Fed is no longer in the market as a buyer is scary! So perhaps rising rates today is a function of psychology AND supply/demand technicals.

For more on the week ahead, read the MND STORY.

Reports from fellow mortgage professionals indicate lender rate sheets are WORSE compared to Friday. While rate sheets are slightly worse today, the par 30 year conventional rate mortgage continues to hold in the 4.875% to 5.125% range for well qualified consumers. Instead of being offered a higher rate you may be asked to pay more points.  In order to secure a par interest rate you must have a FICO credit score of 740 or higher, a loan to value at 80% or less and pay all closing costs including one point loan origination/discount/broker fee.  If you are seeking a 15 year fixed term, you should expect a par rate in the 4.375% to 4.625% range with similar qualifications.