A high note for bond prices, that is, which as you know means lower rates yet again.

Did you float with me?  I hope so!  we're improved by about 14/32nds today on the 5.5% coupon.  The best thing about gaining ground today is not necessarily related to today's gains, but more importantly, it solidifies yesterday's boom.  Lenders didn't price in all of that MBS "goodness" into their rate sheets yesterday.  In fact, it's a pretty standard policy for lenders to "wait and see" if gains in the MBS market hold before translating that strength onto their rate sheets.  So when rate sheets are released today, hopefully these great MBS gains have lenders putting another "toe in the water."

What's causing this?

1. Personal Income and Outlays

           - Although the personal income and outlays report numbers were just a bit higher than expected, when the effects of inflation are factored out, people aren't making any more money or spending any more money.  This speaks to my favorite economic negative: consumer spending

 2. NAPM

         - The National Association of Purchasing Management released their index this morning at 44.5.  Expectations were 50.0  This indicates a contracting manufacturing sector.  It's also widely followed as an indicator of how ISM manufacturing survey numbers will come out.  44.5 is dismal.

3. Consumer sentiment

      - This came in relatively close to expectations (70.0), at a reading of 70.8.  That's right!  Slightly higher than expected.  But remember, the estimates are just those, and they account for all the economic negativity.  So although this consumer sentiment reading is not damaging the markets today, 70.8 is quite low historically and is more of a "confirmation" of worries..

4. Other News

      - The proposed AMBAC bail out plan that fueled a bit of a rally last week appears to have a few hurdles to get through, including the need to show more capital to the ratings agencies before they will approve it.  This mitigates some of the enthusiasm that caused rates to go up previously, and is likely helping rates this morning to a small extent.

So what next?  Late last week I had hoped that today would be the best day for rates we'd since since late January and so far, it looks to be that way.  But will it last?  Will it continue to improve?

My cautionary thoughts are these: as we've said, technical factors exert pressures on rate movement both in the long term and short term.  The technical analysis I mentioned about the bond price "bouncing off" the 50 day moving average line has held true. So we will likely experience that ball dropping back towards the moving average, even though that moving average is trending up.  It's simply a matter of "when?'

I can tell you this: the market bulls will be looking for some good news after the past 3 days.  So watch out for sudden volatile changes.  I think we're in a good position as far as making lock decisions though.  The trend over the past several months has shown an uncanny resemblance to a ball bouncing up a hill, the hill being the 50 day moving average of MBS prices.  The ball bounce cycles (which trace the path of the ball) have lasted 1 to 2 months since August.  This means you're looking to lock 15-30 days into a cycle.  This most recent cycle began about 10 days ago.  This is making next week look like mortgage rate promised land if you go by a purely technical read of the data.

I wish I could just say the technical read will always be right, and keep floating until next week.  But the constant truth is to assess the interest rates at which certain loans in your pipeline no longer are executable.  If you are below that interest rate now, you won't regret locking on what might not be your best rate as much as you'd regret not locking and potentially losing the opportunity. 

If you're forcing me to take a stand, I'll do so from the top of this fence!  The indicators are there to say rates will improve next week.  But the huge mitigating factor is the headline economic news that seems to have been hitting recently.  One big, unexpected announcement could ruin the whole party.  So the name of the game is to cautiously float.  If we see our bouncing ball start to fall back towards earth, we'll still have an opportunity to lock at better rates than we had 3 days ago.  But if you take this approach, it' imperative that you keep an eye on the markets and on this blog.  Remember, that there is still some fluctuation as rates improve.  For instance, the past path of the bouncing ball is not a perfect arc.  We may see rates take a small step back monday, only to continue on with strength through Friday's employment situation report.

So cash in your chips or let it ride!  I think if you play the table right, you can do a little bit of both this week.