(When the bond goes down, rates go up.)

Today the bond is ending down, somewhere around -12 points.   

The downward trend began on March 24^th where you see the big red candlestick going down the chart.  It dropped even further on March 25, but then regained most of the loss.  Since that time, it has not been able to recover even half the loss from the March 24^th drop. 

If you have been following our blog posts and commentaries, you will remember the Treasury department has announced it will stop buying Mortgage Backed Securities (MBS) at the end of March.  They have been purchasing huge pools of MBS (over $1 Trillion!) at a rate of return that few if any bond investors would take.  This kept mortgage rates artificially low.  The Treasury department is sticking to their schedule, so as of tomorrow MBS rates of return will have to rise to a level that will attract investors. (The consensus is a rise of about .5% - 1.0% over time, which is the amount mortgage rates should increase). 

Rates rose almost .25% just after the March 24^th drop. 

Some analysts have speculated that there are huge pools of money that have been waiting on the sidelines that should help replace what the government has been buying, and keep rates stable.  Two problems with that thought process. 

1.    Few investors are interested in buying MBS at a rate of return that the government was buying;

2.    The government is already indicating that it plans to start selling their huge load of securities back out on the market soon. 

If the government dumps a bunch of MBS on the market, it will stall the buying.  Their whole reason for buying the MBS in the first place was the lack of buyers in the market.  If they do not have a slow release of these securities back into the market, we may have the same issue of oversupply all over again.  Let’s hope they have a financially sound strategy that does not spook the markets.

If you have not yet locked in these great rates, you may very well miss them if you do not act quickly.