Tuesday, March 10, 2015 - Article by: Bart Castelli - Homestar Financial Corporation NMLS #70864 -
Did I mention increased market volatility yesterday? Today both stocks and bonds are volatile with stock indexes quite weak and treasuries and MBSs are doing better adding to the improvements from yesterday. The 10yr at 10:00AM is at 2.13% down 4 BPS and MBS prices are 33 BPS higher than yesterday's improvement. What a difference from Friday's fiasco.
It is all about what the Fed will do and when and what is occurring in Europe and China. Interest rates in Europe continue to move to zero, as we see Germany, Spain, and Italy hit record lows on their 10yr treasuries.
There will be several reports today that will not really affect the markets per se - as well at this afternoon the Treasury will begin this week's auctions with $24B of 3yr notes.Panicky selling is how to describe the selling last Friday. Friday pushed MBS prices down 79 bps and the yield on the 10yr up 14 bps. The rebound yesterday and so far this morning - the 10yr has regained 17 bps and 30yr FNMA 3.0 coupon has taken back 61 bps of the decline Friday. As noted yesterday market volatility will increase this week - Friday the DJIA dropped 279 points, yesterday up 139 points and so far this morning down 201 points. Technically the stock indexes are not looking well in the near term, increasingly hearing more pundits calling for a major correction. We have heard that refrain numerous times over the last 18 months but so far any decline in prices only stimulated increased buying and pull backs did not last more than a few sessions.
The 10yr's 100 day average is at 2.11% - looking back the last time the 10yr yield ran above its 100 day average occurred in September last year, but it did not last long though before new buying drove it back under the 100. Not saying that will occur now, but neither am I discounting it. It is still about what and when the Fed will begin increasing rates. It has been years now that markets have been tied to the Fed, and Fedspeak does not help clear the air with too many opinions within the Fed itself.
What does this mean? If you can stomach this volatility and have not yet locked in on this rate that has come back to us, cautiously float and see what happens. Right now, it looks good, but anything can happen.
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