Its time to lock your loans

Tuesday, September 11, 2007

ECONOMIC DATA / NEWS

Fed Chairman Bernanke will be speaking to the German central bank this morning at 11:00 AM ET.  He will probably speak more on the global economy, potentially even focusing more on European conditions.  Don’t expect him to discuss much monetary policy, if any.  Even if he makes a side comment about rate, he is unlikely to say anything with any shock value.  So, although traders will be listening for any clues about what the Fed will be discussing at their meeting a week from today, they probably won’t get much insight.

And Countrywide is supposedly trying to make another deal similar to the one it made with Bank of America last month.  Regardless of the source, it has become apparent that Countrywide will do whatever it has to do to stay liquid and keep its doors open.  It also shows strength in the companies that are investing in Countrywide.  Citigroup is reportedly involved in this next deal, so the larger lenders seem to be enduring the tough times much better than some of the smaller lenders.  These companies have also been doing a lot more A-paper loans than many other lenders, which is helping with their cash flow as well.

TECHNICAL ANALYSIS

MBS prices climbed near their six month high yesterday, and the altitude became a little too much for investors.  The FNMA 30-year 6.0% flipped to a 15bp decline today, putting the price at 100.69.  The stochastics had moved back into overbought territory with the incredible rise over the last four days, but they have taken a sharp turn downward this morning.  Prices could drop as low as the 200-day moving average at 100.13, but a drop like that would be extreme.

Treasuries are holding relatively firmer than MBS.  The 10-year yield is only up 2bp to 4.35%.  There is strong resistance around 4.45%, where the previous support, the downward trend line, and the 10-day moving average have all coincided.  However, the downward trend line and the 10-day moving average will continue to fall, which will create a falling resistance level to help push the yield down in the long run.

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