Mortgage Market Recap for the Week ending 10/31/08

The fizzle is gone - mortgage backed securities have fallen, and they’re not getting up.  At least the floor they’ve fallen on hasn’t given way!

Here’s what happened this week: On Monday, mortgage bonds fell from the 100 day moving average (a lofty perch at this point!) and touched current support before rebounding slightly. Still, it was a bloody day by any measure.

The rest of the week has been a wrestling match between the Bears and the Bulls to see who is going to take control. Though Friday, it was a war of technical support - and so far the support is holding. That’s a good sign on the one hand - since a failure of support would cause a further spike in mortgage rates. It’s a bad sign on the other hand - if you look at the chart below you’ll see why. Mortgage bonds fell off the 200 day moving average - came down to current support - then bounced back above the 200 day - then fell back to current levels … where there’s been no bounce so far.

Perhaps the best explanation is that mortgage bonds didn’t like the Fed cut earlier in the week - but since there were other central bank cuts that followed, inflationary concerns were mitigated. The result? Lethargic mortgage bonds.

Stay tuned this coming week - I’m guessing it’s going to be a fun ride however it turns out!

Thanks for reading!

I’ll post back soon,

Ken