Friday, June 22, 2007
9:47 AM
Central Time
Daily Commentary
By Larry Baer, Market
Alert
SHORT-TERM TREND (20 days or less)
Favors higher rates and lower prices
SUGGESTED PIPELINE STRATEGY: I think there is still a strong probability sellers
will take at least one more stab at pushing the Fannie Mae 6.0% 30-year
mortgage-backed security back down to something in the 98.156 to 97.718 price
range before the potential for a multi-week rally to lower mortgage interest
rates and higher prices develops in earnest.
Markets very seldom "crash up" - but they do have a
nasty habit of "crashing down." There are a ton of both domestic and global
cross-currents buffeting mortgage invertors right now. Under these conditions I
think it far wiser to be OUT of the market and run the risk of winding up
wishing you were IN as opposed to being IN the market and winding up wishing to
heck you were OUT. I recommend that you wait for the price of the
Fannie Mae 6.0% 30-year mortgage-backed security to close above a price of
98.937 before initiating new floating loan positions. (Some may feel the tug
to expand their "floating" loan pipeline well before that price point is reached
but in my judgment, the risk versus the reward profile of that strategy is too
questionable at this juncture.)
If buyers once again stage a solid buying spree as we
approach the low 98 to high 97 price level I think it is likely that the worst
of the run-up in mortgage interest rates this year will be behind us.
Patience will almost certainly pay significant dividends this
week.
LONG-TERM TREND
(21 days or more) Favors
higher rates and lower prices
SUGGESTED PIPELINE STRATEGY: Maintain a "lock 'em if you've got 'em"
pipeline risk management strategy until/unless the Fannie Mae 6.0% 30-year
mortgage-backed security can muster the momentum to close above a price of
99.968.
Commentary: The economic calendar is bone-dry today;
a condition that will allow investors the opportunity to tidy up their positions
in front of the coming week when data and event risk will flow thick and fast.
Traders will focus intently on the result of a two-day
Federal Open Market Committee policy meeting (scheduled for Tuesday and
Wednesday). Market participants broadly anticipate the Fed will hold short-term
interest rates steady, but they'll dissect every syllable of the post-meeting
statement (scheduled for release at 2:15 p.m. ET on Wednesday) for the slightest
hint of what to expect next from the Fed. Traders will also turn the spotlight
on reports concerning the pace of new and existing home sales (10:00 a.m. ET
Monday and 10:00 a.m. ET Tuesday), the final estimate of first-quarter Gross
Domestic Product (8:30 a.m. ET Thursday), and the level of consumer inflation as
measured by the personal consumption expenditure component of the May income and
spending statistics (8:30 a.m. ET Friday).
As if the swirl of macro-economic data was not enough
for market participants to contend with - Uncle Sam will be splashing around in
the global financial markets next week looking to borrow $18 billion in the form
of 2-year notes on Tuesday and an additional $13 billion in the form of 5-year
notes on Wednesday.
Be patient be disciplined and play it by the
numbers.
THE MARKET IS ALWAYS RIGHT! YOU AND I
ARE SOME OF THE TIME.
If you require further clarification of today's market
commentary don't hesitate to call us at:
972-612-2076
or
800-382-3865
