MBS 'stepping down' means rates climbing up

by Kelli Rogers04 Jun 2013

A "stepping" pattern in MBS over the past month has seen mortgage rates climbing higher by the week.

May 1, 2013 saw the highest prices paid in 2013 for the Fannie Mae benchmark MBS, which resulted in the lowest fixed mortgage rates of the year on May 1. But mortgage rates have been steadily increasing since then. Bryan McNee, senior bond analyst for MBS Authority, points to a classic "stepping" pattern on the proprietary charts, which look like the basic set of stairs in your home. MBS started at the top at the end of April and has been steadily taking a new and lower step downward each week. Each and every week in May – including the week that briefly held the lowest rates of the year – mortgage rates worsened from Monday's open to Friday's close.  

“There have certainly been peaks and valleys each week, but the end result each and every week has been for a net aggregate loss for the week, which of course means higher rates,” said Bryan McNee, senior bond analyst with MBS Authority.

Though both strong and weak economic data surfaced during this period, the overriding factor during May has been downward pressure on MBS demand as sentiment continues to grow amongst traders that the Federal Reserve will begin to pull back on monthly MBS purchases, McNee said.

The big move that started this pattern was the NFP (non-farm payroll) report released on May 3rd, which came in better than expected and caused MBS to sell off.  If NFP data received this Friday is stronger than the consensus estimates of 168,000, McNee estimates MBS will continue its downward stepping pattern.  It will take a reading below 150,000 for MBS to make up any lost ground.


Click on the link below for MPA's exclusive Stepping Pattern Chart: http://www.isysholdings.com/mbsratewatch/nl/060313MBSauthority.jpg


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