Last week the Treasury issued new 10 Year Bills and 30 Year Bonds and each auction went incredibly well with soaring demand. Rick Santelli from CNBC graded each auction an "A". This tells me that there is great demand for bonds from private investors, mutual funds, ETFs, hedge funds, etc. which is great news. Second, last Thursday the Fed for the FIRST TIME purchased more bonds of the 2% coupon versus the 2.5% coupon. Thus, mortgage rates dropped below 3% on conventional 30 year fixed rate loans. And I thought and recommended to clients that mortgage rates should drop even more; thus don't lock your rate.
Then, Friday afternoon happened and the mortgage bond market dropped by nearly 40 basis points. Was this simply profit-taking or a sign of a reversal? Either way it's a reminder don't get too confident as rates can ALWAYS increase and why 95% of the time I recommend that my clients lock in their rate right away.
Meanwhile a Golden Cross formed in the S&P 500 stock market, in which the 50 Day Moving Average crosses above the 200 Day Moving Average. This technical pattern has corresponded with the end of every major bear market in the last 70 years, according to Sundial Capital Research and this news dominated Wall Street on Friday afternoon. I believe this news probably caused the sell-off in mortgage bond on Friday afternoon.
On Monday the S&P 500 closed down 30 points and mortgage bonds ended unchanged for the day in a reversal from action on Friday. So, there was no follow-through on Monday from Friday's action. Maybe stock investors aren't convinced they should be buying more stocks? Will mortgage rates resume their slow drop in the coming days and weeks? We will see.