Posted by: cfigueira | June 8, 2010

Mortgage bond prices

Mortgage bond prices opened lower Tuesday morning erasing most the gains seen Monday afternoon. Strong stock futures, an indication the DOW Jones index will open higher, are pressuring rates.

There are no events or data before lenders set pricing this morning. Traders are waiting for stocks to begin trade at 9:30 am ET and for the Treasury auction this afternoon.

When discussing floating/locking with your borrowers, let them know about the auctions this week. Auctions add supply of debt to the market, which must be purchased using available investment funds. Just like any other commodity, the more of it you have, the lower the price must be to attract buyers. When the price of a bond falls, yields rise. Another auction reality is the longer the duration of the offering (1 month vs. 30-years) the harder it can be to sell. Today’s 3-year will cause less heartburn than the 10 and 30-year offerings on Wednesday and Thursday.

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