It’s already been a bumpy ride in the mortgage-backed bond market this morning. Watch today’s you tube video to understand why.

Current outlook:locking bias

As I explained in yesterday’s ‘rate update’ we are closely watching the level of foreign participation in this week’s US Treasury auctions.  Today there will be $42 billion in US T-bills sold to the market.  We wouldn’t surprised to see mortgage rates increase due to the additional supply of bonds on the market.

S & P released their monthly Case-Shiller real estate report.  Many experts consider this report to be the most accurate measure of home prices (click here to understand why).  The report showed that home prices declined on a year-over-year basis at the slowest pace in 12 months.  Many analysts are interrupting this as more evidence that the housing market is at or near bottom.

If you haven’t yet read about the new federal mortgage rules which take effect July 30 and could delay real estate closings you can do so by clicking this link.

Current Outlook: bias towards locking on short-term transactions with additional supply of treasury bills.

Mortgage rates are unchanged from Friday.

This week’s schedule for US Treasury fixed-income securities auction:
The US Treasury is scheduled to sell a high volume of T-bills, notes, and bonds this week. On Monday, $6 billion in Treasury-inflation-protected 19.5-year notes will be auctioned; along with $32 billion in 13-week bills and $31 billion in 26-week bills. On Tuesday, $27 billion in 52-week bills will be auctioned, along with a heart-stopping $42 billion in two-year notes. On Wednesday, the Treasury will auction $39 billion in five-year notes. And on Thursday, $28 billion in seven-year notes will be auctioned. In total $205 billion in securities will be sold.

Here is a link to read the blog post on the new mortgage rules which could delay real estate closings.

Current Outlook: bias towards locking on short-term transactions with additional supply of treasury bills.

Stocks are rallying on a flurry of positive earnings data from Ford Motor Co., AT&T, and 3M.

However, stocks are also benefiting from National Association of Realtors report which showed that existing home sales rose for the 3rd straight month in June.  The same report also showed that inventories fell to 9.4 months vs. 9.8 the month before.  This is great news to share with homebuyers who are concerned about the housing market.

There is significant technical support for mortgage-backed bonds at present levels but we still think locking is the best play if you haven’t already.

Current Outlook: locking

Yesterday after the close of the stock market aluminum maker Alcoa (AA) kicked off the 2nd quarter earnings season.  As expected their current earnings were soft.  But, they were not as soft as some analysts had expected.  Over the course of the next couple weeks mortgage rates will likely take lead from the stock market.  Click this link to read how the stock market impacts mortgage rates.

As I explained in yesterday’s ‘rate update’ I believe that stocks in the financial industry will be especially scrutinized during this earnings season.  Here are the dates that the most important financial companies will report:

Goldman Sachs- July 14
JP Morgan Chase- July 16
Bank of America- July 17
Wells Fargo- July 22

With mortgage rates lower by .75% over the past month we begin to get concerned about rates reversing and moving higher.  We are going to shift our focus to a locking bias.  There is probably more to lose than gain at this point.

Current Outlook: bias towards locking

-Increased supply of US treasury bills to pay for the financial bailout plan.  When the supply of treasury’s increase it pushed yields higher for all fixed income securities including mortgage-backed bonds.

-FDIC’s plan to cover unsecured bank debt.  As a part of the financial rescue plan the FDIC now has authority to effectively sell bonds to pay for bank deposit insurance.  This represents a further supply in government issued bonds which could also contribute to higher interest rates.

-However, Mark Zandi correctly points out near the end of the article that spreads between 30-year treasury bonds and mortgage-backed bonds are close to 2% right now.  Historically the spread is closer to 1.5% so a convergance in yields could help mortgage rates.