Phil Grossfield's Blog

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Bonds Improving This Morning After Dropping Early.
2 Price Improvements Issued!
Trends in Bond Trading Shed Some Light.

The 30-year Fannie Mae Bond was down early but has since bounced back and is now trading positive +25bps on the day. We already issued a two reprice improvements.

As you know, a lender’s rates/pricing is directly affected by the 30-year Fannie Mae bond. If the bond is selling then rates improve and if bonds are sold off rates get worse. It’s that simple. Capital Markets looks at other indicators as well, like the 10-year note, but the 30-year Fannie Mae bond is a direct indicator and the most reliable, by far.

How the bond trades over time is watched carefully by traders. They look for trends in bond prices to best-guess on which direction it’s headed so they can strategize to buy low and sell high. Traders look for floors of support to make a best-guess on when to start buying. That is, they look for the bottom, and when they think the bond is done selling off and the price is as low as it’s going to get they’ll start buying bonds hoping the price will go up so they can sell at a profit. I hope that makes sense.

So why am I telling you all of this?  Don’t get so impatient…I’m getting there….  Okay, so look at the chart below…this shows how the 30-year Fannie Mae bond has been trading from September 18 until today…about 3 months. Green candles show positive movement…the price of the bond increased. Red candles show negative movement…the price of the bond went down. Over the course of the 3 months you can see how the bond improved and then headed back down again. But when it hit the same floor as the September 18th price it stopped…and then moved positive…this happened yesterday…you see that?!  That line is now a major Floor Of Support. It has held strong and traders are using it to guess when to buy. This bodes well for the bonds which looks like it’s on its way to improving. If so, we could see some improvements to rates/pricing over the coming weeks….

Now, before you get too excited, you must keep in mind there are a ton of things that can happen which influence pricing. Geopolitical issues, economic reports, even weather and unforeseen acts of G-d can disrupt the markets. But this trend has merit and I’d like to take some positivity into the new year with me, can you dig it?