Click on the Photo for Enlarged Version. Much easier to read!

We had a nice rally today in the treasury market, but not too much in Mortgage-Backed Securities (MBS) trading. Why? Looking at the indicators above, you could have made the argument that interest rates would also improve in equal margins, but they didn’t.

Even Chase actually re-priced for the worse this afternoon to stop the inflow of mortgage locks and not overwhelm their staff. In addition, other lenders did not price to the market which is not unusual with prices running higher (See MBS chart above – the green column on the far right is today). As the price of the MBS goes up, inversely, interest rates go down – typically.

As the price of the MBS rises to new levels not seen before, fears of fallout and lenders inundated with large volumes of locks cause the big banks to keep rates flat (or worse, raise rates). They can control the inflow by simply closing the pipe by reducing the demand for their money. You can’t fight it, this happens every time there is a strong rally. It’s the nature of our market place.

I wish I had the ability to manage my inflow of business like the big banks do, but that’s not the way it works for us at the bottom of the food chain. We are either working on our files, or working to get more business. Never a dull moment and never, ever, a thought of slowing the pipe down.

At this point the US financial markets are way over-extended. The bond market over-bought and ripe for a sell-off, and the stock market is oversold. We expect the continued bullish outlook for mortgage-backed securties, but don’t see this translating into lower rates. Of course, we have been wrong many times in the past. I am not one to ever guess or time the market, only take advantage of a good rate when I can grab it.