Tracking The Bond Markets for Direction
Bill
Gross, who runs the Pimco Bond Fund is considered one of the gurus of
the bond markets. Investors know this and so the Pimco Bond Fund is
huge. If Pimco buys or sells bonds or mortgage backed securities, it
can move the market.
Recently, Gross sold off 30 billion dollars
of mortgage backed securities. He notes that mortgage backed
securities have been increasing in value (good to hear) and he thinks
that now is the time to take profit. *Chart: The Fed has now purchased
about $945 billion in agency-backed MBS through the week ended October
14.
Federal Reserve's Mortgage Purchase Program
The
secondary mortgage markets have been frozen and thats a big reason why
there has been little money available for home loans. To keep the
markets moving the Obama Administration has been buying up mortgages to
keep the markets liquid.
The Fed started buying agency-backed
mortgages in January in to bring down mortgage rates. Since then, it
has bought the majority of agency MBS on the market. Recently the Fed
has decided to wind down the mortgage purchase programs.Once the Fed
stops buying mortgages, the fall in demand will lead to a drop in MBS
prices.
Why Do We Care
Expect interest and mortgage rates to rise.
Too
much supply and not enough demand means prices go down, and yields had
to go up to attract investors. Basically, this is a test to see if the
banks and the marketplace have reached a point where they can begin to
function without Govt stimulus. Lets hope the Fed stays close to the
exits.
The Home Buyers tax credit is due to expire. Congress is
considering extending and possibly expanding this program. Its been a
help by soaking up supply.
Home resales in
September showed the largest monthly increase in 26 years as buyers
bought before the tax credit for first-time owners expires. Sales
jumped 9.4%, according to NAR.
The FHAA index measures repeat
sales on homes financed through Fannie Mae or Freddie Mac. Although
Prices were down 3.6% in the past year, and were down 10.7% from the
peak, they rose in four of nine regions, fell in four and were flat in
the other
Momentum
If
we can offset the higher rates which are likely to tamp down sales with
a $15,000 home buyers tax credit, we may be able to keep homes moving.
At 20% of the economy, its crucial that the real estate markets remain
on a positive track.
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