Volatile Market for Today-February 25, 2009

Goodness gracious. The Bond market has been all over the map today. Freddie Mac had an accelerated delinquency of three times that from this time last year. Bankruptcies are up, stock market is down.

In severe times bankruptcies generally increase. This casts doubt over the performance of corporate and mortgage bonds(even with the quasi-backing of the Fed). From an investment it is simple, you typically don't pay premiums to buy something with an uncertain future value. To sell whatever it is, whether it be a bond, house, or widgets/etc..., the price generally has to fall.

Unfortunately in bond terms, as prices fall, rates/yields rise, which is what we are seeing right now. Mortgage bond prices remain lower as reports of delinquencies fill the headlines. Freddie Mac delinquency rate accelerated in January. In severe times bankruptcies generally increase.

This casts doubt over the performance of corporate and mortgage bonds(even with the quasi-backing of the Fed). Existing home sales fell 5.3%, weaker than the expected 1.4% increase. Debt supply remains the focus this week. The 2 year auction yesterday was relatively lackluster despite recent efforts by the US Government to lobby China to purchase US debt. The 5 year auction this afternoon will likely result in some market movement.

Be alert here. We are still in a choppy trading environment. The bottom line is that the Fed is trying to keep rates low by purchasing mortgage bonds through open market operations. So far they have provided a much-needed influx of buying into MBSs. However, they are not the only entity buying and selling so lower rates are not a given.

So far their efforts have generally helped rates but we are still subject to large market swings despite the Fed's efforts. With that in mind, caution is the key. Take advantage of gains when they come.

For more information on the Freddie Mac news article, please visit the story directly at http://uk.reuters.com/article/marketsNewsUS/idUKN2546018520090225