Bonds Trading in Fah-Q Pattern

Technical analysis—the study of trading trends and data—isn’t always the best way to determine the fundamental value of a security. But it’s useful for short-term decision making. Mortgage bond chart patterns can tell good lenders a lot about the right time to lock a mortgage rate for a borrower. After a rough trading week, and unprecedented trading volatility since August 2007, we’re coining a new chart pattern name to add to the endless list of names.

Observe the Fah-Q chart pattern of mortgage bond trading in the past quarter. Up and down wildly in December, like knuckles. Up steadily in January to a peak, like a protruding middle finger. Then a steep drop back into the knuckle pattern punching you in the face. When bond prices rise, rates fall, so late December to late January was the period when the Fed was cutting drastically on recession fears with bonds reacting positively. But inflation fears returned with a vengeance causing a bond sell off, which pushes rates up. Look closely at the Fah-Q pattern to see how it resembles a certain hand gesture, and say Fah-Q a few times fast … you’ll get the message the bond market is trying to tell us.

Chart is from Mortgage Market Guide, a proprietary data service serving loan originators.