Lonnie's Market Line

Well, the Federal Reserve’s mortgage fund managers are in the market buying, which is why we see mortgage bonds improving while prices for treasury bonds are deteriorating. Again, the market is not trading on economic data or fundamentals, so do not try to understand what is happening. Government intervention is driving trading and prices, and the market participants are trying to keep up. For example, if you are a servicer of several hundred billion of mortgages, you had a model that was developed over time, based on market fundamentals and data that was used to hedge your servicing portfolio. Now that model is broken. So what is the value of your servicing and what value should you place on the servicing your company is currently taking on?

Back to economic data---the National Association of Realtors reported this morning that pending home sales fell 4% in November. Of course, this was prior to the Fed announcing its mortgage purchase program, so the affects of that will not be evident for a couple more months.

Prices for U.S. Treasury bonds are falling again today, meaning interest rates are rising, as the market comes to grips with this week’s auctions---$30 billion of 3 year notes and $16 billion of 10 year notes.

Again, the main focus this week will be Friday’s jobs report, currently expected to reflect the U.S. economy lost 500,000 jobs in December 2008.