Mortgage Update - Tuesday August 25

Current Trend Direction: Sideways
Risks favor: Carefully Floating
Current Price of FNMA 4.5% Bond: $100.09, -6bp
Mortgage bonds are a bit lower as stocks look to open higher, after it was announced that President Obama has reappointed Ben Bernanke as Federal Reserve Chairman to a second 4-year term. This looks to be a smart move as financial markets finally appear to be stabilizing. It was a little less than a year ago that the credit markets were in disarray and fears of financial collapse spread worldwide. Although Mr. Bernanke has his critics, and he has probably exerted his influence in areas far beyond those of past Fed chairs, he has many supporters that credit him with helping the United States step towards recovery. President Obama's reappointment of Mr. Bernanke comes amid pressure and speculation from some Democrats, who would have rather seen current Fed member Janet Yellen or former Fed Vice Chairman Alan Blinder. But a look back at the history books shows that when former Fed Chairman Paul Volcker was replaced by Alan Greenspan in 1987, the uncertainty hating stock markets sold off hard. So the move to keep Big Ben should help keep the markets a bit more stable.
The Bond market is also a little jittery ahead of this afternoon's $42B 2-year Note auction at 1:00pm ET.
In what appears to be a continuing positive trend, more good signs for housing were released this morning. The Case-Shiller Home Price Index rose to a seasonally adjusted 1.4% in June - the 2nd month in a row. Prices rose in 18 of the 20 cities used in the survey. And the index showed that prices for the 2nd quarter rose by 2.9%, the first quarterly increase in 3 years. Prices are still down 15.4% compared to a year ago.
While we are very pleased to see good housing numbers, we must remember that some of the improvement may be coming from people who would have purchased in 2010 that are moving up their buying decisions to take advantage of lower rates and tax credits before they expire. This means that we may actually see a little dip in the housing numbers early next year. So the positive trend is very welcome but should be taken with a grain of salt. It's perhaps best thought of for now as housing not getting worse, instead of housing improving rapidily.
Consumer Confidence is set to be released at 10:00am this morning and despite the expected improvement, consumers' confidence remains fragile amid ongoing job losses.
With mortgage bond prices modestly lower and sitting in a range between Support and Resistance, we can start the day floating and watch for the impact of the treasury auction as well as stocks influence on mortgage bonds. For more information contact Philip Jensen at PhilipJensen.com