Mortgage Rate Update
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Friday, June 29, 2012
Mortgage Rates
Stocks strong this morning with the bond and mortgage markets trading lower in price and higher in yield. French President Francois Hollande led a revolt against Germany’s austerity-first doctrine for combating the financial crisis, winning easier aid terms for Spain and Italy in an effort to reshape the balance of power in Europe. At the 19th European summit since the crisis broke out, Hollande pushed through the concessions by threatening to delay endorsement of a deficit-reduction treaty that German Chancellor Angela Merkel touted as one of her signature achievements. Euro leaders agreed to let the permanent bailout fund pour money into Spanish banks directly, instead of channeling it via the Spanish government. Direct recapitalizations will be possible once Europe sets up a single banking supervisor, possibly as early as 2013. Spanish and Italian bonds surged after euro-area leaders expanded steps to stem the debt crisis by easing repayment rules for emergency loans to Spain’s banks and relaxing conditions on potential help for Italy. Given past non-performances when EU summits were held, this one is being considered some kind of success.
May personal income increased 0.2% while spending was unchanged, income was on target but spending was weaker than +0.1% expected.
At 9:30 the DJIA opened +120, NASDAQ +58; the 10 yr note at 9:30 -22/32 1.66% +8 bp, 30 yr MBS price -7/32 (.22 bp) frm yesterday’s close.
At 9:45 the June Chicago purchasing mgrs. index, expected at 52.4, came at 52.9 frm 52.4 in May. The employment index at 60.4 frm 57.0, new orders at 51.9 frm 52.9 and prices pd at 54.0 frm 60.4. The data slightly better than expected but no noticeable reaction to it as the stock market was already up over 170 points and the 10 yr -19/32 at 1.65% +7 bp.
At 9:55 the U. of Michigan consumer sentiment index was expected at 74.1, it fell to 73.2; the current conditions index at 81.5 frm82.1, the expectations index at 67.8 frm 68.9. All the indexes are the lowest since last Dec. There was no selling on the data as markets are totally consumed with what is presently seen as significant progress at the EU summit. More likely, a relief since there was little belief that anything would come from the 19th summit since the first 18 didn’t lead to anything of substance.
Although there was better news out of the EU summit that was widely expected to be anther summit with nothing emerging, the US interest rate markets continue to drift in their trendless and sideways moves. The 10 yr note support remains at 1.70% and strong resistance at 1.56%. The bullish bias on the US rate markets is still intact but is losing momentum over the last three weeks; we will hold for now but a move on the 10 yr above 1.70% will set off additional selling and rates will inch up. ON the downside for yields, there isn’t any momentum or reason now to add more bond buying.
Stocks strong this morning with the bond and mortgage markets trading lower in price and higher in yield. French President Francois Hollande led a revolt against Germany’s austerity-first doctrine for combating the financial crisis, winning easier aid terms for Spain and Italy in an effort to reshape the balance of power in Europe. At the 19th European summit since the crisis broke out, Hollande pushed through the concessions by threatening to delay endorsement of a deficit-reduction treaty that German Chancellor Angela Merkel touted as one of her signature achievements. Euro leaders agreed to let the permanent bailout fund pour money into Spanish banks directly, instead of channeling it via the Spanish government. Direct recapitalizations will be possible once Europe sets up a single banking supervisor, possibly as early as 2013. Spanish and Italian bonds surged after euro-area leaders expanded steps to stem the debt crisis by easing repayment rules for emergency loans to Spain’s banks and relaxing conditions on potential help for Italy. Given past non-performances when EU summits were held, this one is being considered some kind of success.
May personal income increased 0.2% while spending was unchanged, income was on target but spending was weaker than +0.1% expected.
At 9:30 the DJIA opened +120, NASDAQ +58; the 10 yr note at 9:30 -22/32 1.66% +8 bp, 30 yr MBS price -7/32 (.22 bp) frm yesterday’s close.
At 9:45 the June Chicago purchasing mgrs. index, expected at 52.4, came at 52.9 frm 52.4 in May. The employment index at 60.4 frm 57.0, new orders at 51.9 frm 52.9 and prices pd at 54.0 frm 60.4. The data slightly better than expected but no noticeable reaction to it as the stock market was already up over 170 points and the 10 yr -19/32 at 1.65% +7 bp.
At 9:55 the U. of Michigan consumer sentiment index was expected at 74.1, it fell to 73.2; the current conditions index at 81.5 frm82.1, the expectations index at 67.8 frm 68.9. All the indexes are the lowest since last Dec. There was no selling on the data as markets are totally consumed with what is presently seen as significant progress at the EU summit. More likely, a relief since there was little belief that anything would come from the 19th summit since the first 18 didn’t lead to anything of substance.
Although there was better news out of the EU summit that was widely expected to be anther summit with nothing emerging, the US interest rate markets continue to drift in their trendless and sideways moves. The 10 yr note support remains at 1.70% and strong resistance at 1.56%. The bullish bias on the US rate markets is still intact but is losing momentum over the last three weeks; we will hold for now but a move on the 10 yr above 1.70% will set off additional selling and rates will inch up. ON the downside for yields, there isn’t any momentum or reason now to add more bond buying.
Thursday, June 28, 2012
Mortgage Rates
The equity markets opened weaker this morning boosting the rate markets. Still no directional trend though as the bond and mortgage markets continue in their tight ranges. At 8:30 weekly jobless claims were expected down 2K but fell 6K to 386K; however not a good report. Last week’s claims were revised higher to 392K from 387K continuing the trend of upward revisions on claims. Continuing claims did fall, to 3.296 mil frm 3.311.mil and the 4 wk average also declined a little, to 386,750 from 387,500 last week. There wasn’t much reaction in the markets to the data. The final report on Q1 GDP was right on, +1.9% unchanged from last month’s preliminary report.
Unemployment remains elevated on concerns about the fallout from the European debt crisis and the so-called fiscal cliff that will face the U.S. at the end of this year may prompt employers to keep payrolls lean. The Bush tax cuts set to expire at the end of this year and the reduced SS payments also set to end. Given the elections and the inability of Congress to do anything along with declining economic outlooks for most of the global markets are not building blocks to recovery and lower unemployment. Payrolls in May expanded by 69,000 workers, the slowest pace in a year, and have cooled each month since January. The jobless rate, which climbed to 8.2% in May, has been stuck above 8 percent since February 2009, the longest stretch of such elevated levels in the post-World War II era.
JP Morgan Chase’s losses on that hedge trade that went wrong are now seen to be as high as $9B, up from the $2 to $4B that Janie Dimon had talked about. The increased loss estimates are sending the bank’s stock down and dragging the rest of the big banks with it. Yesterday Britain’s Barclay Bank was fined $431 mil for ostensively manipulating LIBOR rates. Its shares dropped as much as 18% as U.K. Chancellor of the Exchequer called for a criminal probe amid speculation that lenders could face billions of dollars in lawsuits. Traders at the U.K.’s second-biggest bank by assets routinely coordinated with counterparts from at least four other banks in an attempt to move interest rate benchmarks, according to documents released yesterday by the U.S. Commodity Futures Trading Commission, the U.S. Justice Department and the U.K. Financial Services Authority. Nearly a day goes by without some kind of scandal or negative news with big banks; a trend that is now 5 years old and with no end of it in sight.
An index of executive and consumer sentiment in the 17-nation euro area dropped to 89.9 from a revised 90.5 in May, the European Commission in Brussels said today. That’s the lowest since October 2009. In Germany, the number of people out of work rose a seasonally adjusted 7,000 to 2.88 million. Germany’s adjusted jobless rate held at 6.8% in June, but with no agreement on how to deal with debts in a number of EU countries the economy of the euro region is going to fall further. A gauge of sentiment among European manufacturers fell to minus 12.7 from minus 11.4 in May, the commission’s report showed. That’s the lowest since February 2010. An indicator of services confidence dropped to minus 7.4 from minus 5.2, while a gauge of consumer sentiment slipped to minus 19.8 from minus 19.3. The EU summit is underway now in Brussels however Germany put a bucket of water on creating euro bonds earlier this week, now there isn’t much expected when the summit concludes tomorrow.
The DJIA opened -85, NASDAQ +23; the 10 yr note at 1.58% down 5 bp and up 12/32; 30 yr mortgage prices up 5/32 (.15 bp) frm yesterday’s closes.
Markets are waiting for the Supreme Court’s decision on Obamacare that will be released today. Talk that in the next hour. The ruling will have a number of potential impacts depending on what the Court says. I the meantime videos of people in front of the Court resembles a circus atmosphere with one sign being carried saying, “you can’t make this kind of thing up”. Just as we send this Reuters is reporting the individual mandate has been upheld.
Treasury will auction $29B of 7 yr note this afternoon at 1:00.
The equity markets opened weaker this morning boosting the rate markets. Still no directional trend though as the bond and mortgage markets continue in their tight ranges. At 8:30 weekly jobless claims were expected down 2K but fell 6K to 386K; however not a good report. Last week’s claims were revised higher to 392K from 387K continuing the trend of upward revisions on claims. Continuing claims did fall, to 3.296 mil frm 3.311.mil and the 4 wk average also declined a little, to 386,750 from 387,500 last week. There wasn’t much reaction in the markets to the data. The final report on Q1 GDP was right on, +1.9% unchanged from last month’s preliminary report.
Unemployment remains elevated on concerns about the fallout from the European debt crisis and the so-called fiscal cliff that will face the U.S. at the end of this year may prompt employers to keep payrolls lean. The Bush tax cuts set to expire at the end of this year and the reduced SS payments also set to end. Given the elections and the inability of Congress to do anything along with declining economic outlooks for most of the global markets are not building blocks to recovery and lower unemployment. Payrolls in May expanded by 69,000 workers, the slowest pace in a year, and have cooled each month since January. The jobless rate, which climbed to 8.2% in May, has been stuck above 8 percent since February 2009, the longest stretch of such elevated levels in the post-World War II era.
JP Morgan Chase’s losses on that hedge trade that went wrong are now seen to be as high as $9B, up from the $2 to $4B that Janie Dimon had talked about. The increased loss estimates are sending the bank’s stock down and dragging the rest of the big banks with it. Yesterday Britain’s Barclay Bank was fined $431 mil for ostensively manipulating LIBOR rates. Its shares dropped as much as 18% as U.K. Chancellor of the Exchequer called for a criminal probe amid speculation that lenders could face billions of dollars in lawsuits. Traders at the U.K.’s second-biggest bank by assets routinely coordinated with counterparts from at least four other banks in an attempt to move interest rate benchmarks, according to documents released yesterday by the U.S. Commodity Futures Trading Commission, the U.S. Justice Department and the U.K. Financial Services Authority. Nearly a day goes by without some kind of scandal or negative news with big banks; a trend that is now 5 years old and with no end of it in sight.
An index of executive and consumer sentiment in the 17-nation euro area dropped to 89.9 from a revised 90.5 in May, the European Commission in Brussels said today. That’s the lowest since October 2009. In Germany, the number of people out of work rose a seasonally adjusted 7,000 to 2.88 million. Germany’s adjusted jobless rate held at 6.8% in June, but with no agreement on how to deal with debts in a number of EU countries the economy of the euro region is going to fall further. A gauge of sentiment among European manufacturers fell to minus 12.7 from minus 11.4 in May, the commission’s report showed. That’s the lowest since February 2010. An indicator of services confidence dropped to minus 7.4 from minus 5.2, while a gauge of consumer sentiment slipped to minus 19.8 from minus 19.3. The EU summit is underway now in Brussels however Germany put a bucket of water on creating euro bonds earlier this week, now there isn’t much expected when the summit concludes tomorrow.
The DJIA opened -85, NASDAQ +23; the 10 yr note at 1.58% down 5 bp and up 12/32; 30 yr mortgage prices up 5/32 (.15 bp) frm yesterday’s closes.
Markets are waiting for the Supreme Court’s decision on Obamacare that will be released today. Talk that in the next hour. The ruling will have a number of potential impacts depending on what the Court says. I the meantime videos of people in front of the Court resembles a circus atmosphere with one sign being carried saying, “you can’t make this kind of thing up”. Just as we send this Reuters is reporting the individual mandate has been upheld.
Treasury will auction $29B of 7 yr note this afternoon at 1:00.
Wednesday, June 27, 2012
Mortgage Rates
The bond and mortgage markets continue to trade quietly with little change this week ahead of the EU summit beginning tomorrow. The stock indexes a little better early on as May durable goods orders were better than thought. Durables up 1.1% with forecasts of +0.5%; ex the volatile transportation orders up 0.4%, less than 0.7% expected. April ex transportation orders were revised from -0.9% to -0.6%. Growth is cooling as a slowdown in global markets emanating from Europe harms exports and curtails equipment spending, hurting sales at manufacturers.
At 9:30 the DJIA opened +45, NASDAQ +12; the 10 yr note at 9:30 +1/32 at 1.62% while mortgage prices were down 1/32 (.03 bp) frm yesterday’s close.
Italy’s 10-year bond yield fell three basis points, or 0.03 percentage point, to 6.15%, after rising to 6.20%, the highest level since June 14. Spain’s 10-year yield declined two basis points to 6.85%, after jumping 49 basis points over the past two days. Spain and other countries are going to push for measures to bring down borrowing costs when European Union leaders meet for a two-day summit starting tomorrow in Brussels. German Chancellor Angela Merkel said today issuing common bonds is the “wrong way” to achieve the greater integration needed to resolve the debt crisis. She said Spain was right to request for help for its banks and Italy was on path to growth. Merkel has caused tension among EU members by resisting calls for joint euro bonds. Germany’s 10-year bund yield climbed four basis points to 1.55% after dropping to 1.46% two days ago, the lowest level since June 19. It wasn’t too long ago that the German 10 yr traded 30 basis points lower in yield than US 10s, now just 7 bps lower.
Merkel said that euro bonds, euro bills and debt redemption funds are unconstitutional in Germany and economically “wrong and counterproductive.” The EU summit appears to be an attempt to get euro bonds to take the heat off Spain and Italy as well as other debt ladened countries in the region. “I fear that at the summit there will be much too much talk about mutual liability and far too little about improved oversight and structural measures,” she said. “Oversight and liability have to go hand in hand. There can only be joint liability when adequate oversight is ensured;” Germany isn’t about to tie itself to poorly managed countries. “The sovereign debt crisis shows us daily that deficiencies in one euro-zone country can cause difficulties in the entire euro zone,” Merkel commented. “It also shows us that national answers aren’t enough to secure the euro area’s stability.” The summit isn’t going anywhere as long as Germany doesn’t get its way.
The NAR reported May pending home sales up 5.9% with forecasts of an increase of 1.0%. Much stronger with strength coming from the West where prices are increasing in places like Phoenix and Las Vegas. Yr/yr pending home sales up 13.3%. On the news the stock market increased a little but the bond and mortgage markets showed no reaction.
This afternoon Treasury will auction $35B of 5 yr notes; yesterday’s 2 yr was OK but not unusually strong; the 5 yr may also have a little less bidding today.
Mortgage applications decreased 7.1% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending June 22, 2012. The Refinance Index decreased 8.0% from the previous week. The seasonally adjusted Purchase Index decreased 1.0% from one week earlier. The refinance share of mortgage activity decreased to 79 percent of total applications from over 80 percent the previous week. The adjustable-rate mortgage (ARM) share of activity is about 4.0% of total applications. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) increased to 3.88% from 3.87%, with points decreasing to 0.40 from 0.49 (including the origination fee) for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,500) increased to 4.12% from 4.06%, with points decreasing to 0.35 from 0.38 (including the origination fee) for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA decreased to 3.71% from 3.72%, with points decreasing to 0.46 from 0.47 (including the origination fee) for 80% loans. The average contract interest rate for 15-year fixed-rate mortgages decreased to 3.24% from 3.25%, with points decreasing to 0.44 from 0.45 (including the origination fee) for 80% loans. The average contract interest rate for 5/1 ARMs increased to 2.81% from 2.75%, with points increasing to 0.41 from 0.33 (including the origination fee) for 80% loans.
The bond and mortgage markets continue to trade quietly with little change this week ahead of the EU summit beginning tomorrow. The stock indexes a little better early on as May durable goods orders were better than thought. Durables up 1.1% with forecasts of +0.5%; ex the volatile transportation orders up 0.4%, less than 0.7% expected. April ex transportation orders were revised from -0.9% to -0.6%. Growth is cooling as a slowdown in global markets emanating from Europe harms exports and curtails equipment spending, hurting sales at manufacturers.
At 9:30 the DJIA opened +45, NASDAQ +12; the 10 yr note at 9:30 +1/32 at 1.62% while mortgage prices were down 1/32 (.03 bp) frm yesterday’s close.
Italy’s 10-year bond yield fell three basis points, or 0.03 percentage point, to 6.15%, after rising to 6.20%, the highest level since June 14. Spain’s 10-year yield declined two basis points to 6.85%, after jumping 49 basis points over the past two days. Spain and other countries are going to push for measures to bring down borrowing costs when European Union leaders meet for a two-day summit starting tomorrow in Brussels. German Chancellor Angela Merkel said today issuing common bonds is the “wrong way” to achieve the greater integration needed to resolve the debt crisis. She said Spain was right to request for help for its banks and Italy was on path to growth. Merkel has caused tension among EU members by resisting calls for joint euro bonds. Germany’s 10-year bund yield climbed four basis points to 1.55% after dropping to 1.46% two days ago, the lowest level since June 19. It wasn’t too long ago that the German 10 yr traded 30 basis points lower in yield than US 10s, now just 7 bps lower.
Merkel said that euro bonds, euro bills and debt redemption funds are unconstitutional in Germany and economically “wrong and counterproductive.” The EU summit appears to be an attempt to get euro bonds to take the heat off Spain and Italy as well as other debt ladened countries in the region. “I fear that at the summit there will be much too much talk about mutual liability and far too little about improved oversight and structural measures,” she said. “Oversight and liability have to go hand in hand. There can only be joint liability when adequate oversight is ensured;” Germany isn’t about to tie itself to poorly managed countries. “The sovereign debt crisis shows us daily that deficiencies in one euro-zone country can cause difficulties in the entire euro zone,” Merkel commented. “It also shows us that national answers aren’t enough to secure the euro area’s stability.” The summit isn’t going anywhere as long as Germany doesn’t get its way.
The NAR reported May pending home sales up 5.9% with forecasts of an increase of 1.0%. Much stronger with strength coming from the West where prices are increasing in places like Phoenix and Las Vegas. Yr/yr pending home sales up 13.3%. On the news the stock market increased a little but the bond and mortgage markets showed no reaction.
This afternoon Treasury will auction $35B of 5 yr notes; yesterday’s 2 yr was OK but not unusually strong; the 5 yr may also have a little less bidding today.
Mortgage applications decreased 7.1% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending June 22, 2012. The Refinance Index decreased 8.0% from the previous week. The seasonally adjusted Purchase Index decreased 1.0% from one week earlier. The refinance share of mortgage activity decreased to 79 percent of total applications from over 80 percent the previous week. The adjustable-rate mortgage (ARM) share of activity is about 4.0% of total applications. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) increased to 3.88% from 3.87%, with points decreasing to 0.40 from 0.49 (including the origination fee) for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,500) increased to 4.12% from 4.06%, with points decreasing to 0.35 from 0.38 (including the origination fee) for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA decreased to 3.71% from 3.72%, with points decreasing to 0.46 from 0.47 (including the origination fee) for 80% loans. The average contract interest rate for 15-year fixed-rate mortgages decreased to 3.24% from 3.25%, with points decreasing to 0.44 from 0.45 (including the origination fee) for 80% loans. The average contract interest rate for 5/1 ARMs increased to 2.81% from 2.75%, with points increasing to 0.41 from 0.33 (including the origination fee) for 80% loans.
Tuesday, June 26, 2012
Mortgage Rates
Treasuries and mortgages improved yesterday as the stock market declined; today, as has been the case recently, after a day of improvement in the bond markets prices are weaker. The stock indexes are better this morning, both markets are in tight narrow ranges for the last three weeks.
The Case/Shiller April price index declined in April but was the best in months. Property values in 20 cities dropped 1.9% in April from the same month in 2011, the smallest decline since November 2010, after decreasing 2.6% in the year ended March. Phoenix showed the biggest adjusted monthly increase, with prices rising 2.5% from March. Detroit showed the biggest decrease at 2.1%. Ten of the 20 cities in the index showed a year-over-year decline, led by a 17% drop in Atlanta, the only city to show a double-digit decrease. Phoenix showed the biggest year-over-year increase, with prices rising 8.6% in the 12 months to April.
At 9:30 the DJIA opened +24, NASDAQ +10; the 10 yr note -9/32 at 1.64% +3 bp and 30 yr mortgage prices down 4/32 (.12 bp) frm yesterday’s close.
At 10:00 June consumer confidence index, expected at 64.0 frm 64.9, fell to 62.0 and May revised to 64.4 The present situation index at 46.6 frm 44.9 (revised frm 45.9); the expectations index at 72.3 frm 77.3 (revised frm 77.6). The confidence index is the lowest since last January and the expectations index the lowest since last November. No reaction to the weaker data, yet it is another weak report as most reports have been the last six weeks.
At 1:00 Treasury will auction $35B of 2 yr notes; demand is expected to be OK but not stellar.
Europe still is the centerpiece for global market outlooks as the region is completely unable to solve the debt issues in the EU. Thursday begins the 19th summit meeting since 2010 when the crisis began; no progress so far in attacking the problems head on and there isn’t likely to any progress this time around. Four officials led by European Union President Herman Van Rompuy today released a road map to a fiscal and banking union that ran into immediate criticism from Germany for placing too little emphasis on controlling national budgets. The “map” centered on common banking supervision and deposit insurance and a “criteria-based and phased” move toward joint debt issuance. It also suggests that the EU could impose upper limits on annual budgets and debt levels of nations that use the euro. Germany’s instant opposition lessened the chances that the summit will end with any plan once again. Nero was said to have sat and played his lute while Rome burned down, today Europe is burning while all the leaders play their fiddles.
US interest rates remain essentially unchanged now for the last three weeks; improving yesterday and this morning falling back. There is little chance the bond and mortgage markets will change much until the end of the circus known as the EU summit meeting that concludes on Friday. Based on news reports this morning it appears it will be another summit that fails to accomplish much and in turn should keep US interest rates from increasing. We still hold that as long as the bellwether 10 yr note can hold under 1.70% the outlook will remain positive for the bond markets.
Treasuries and mortgages improved yesterday as the stock market declined; today, as has been the case recently, after a day of improvement in the bond markets prices are weaker. The stock indexes are better this morning, both markets are in tight narrow ranges for the last three weeks.
The Case/Shiller April price index declined in April but was the best in months. Property values in 20 cities dropped 1.9% in April from the same month in 2011, the smallest decline since November 2010, after decreasing 2.6% in the year ended March. Phoenix showed the biggest adjusted monthly increase, with prices rising 2.5% from March. Detroit showed the biggest decrease at 2.1%. Ten of the 20 cities in the index showed a year-over-year decline, led by a 17% drop in Atlanta, the only city to show a double-digit decrease. Phoenix showed the biggest year-over-year increase, with prices rising 8.6% in the 12 months to April.
At 9:30 the DJIA opened +24, NASDAQ +10; the 10 yr note -9/32 at 1.64% +3 bp and 30 yr mortgage prices down 4/32 (.12 bp) frm yesterday’s close.
At 10:00 June consumer confidence index, expected at 64.0 frm 64.9, fell to 62.0 and May revised to 64.4 The present situation index at 46.6 frm 44.9 (revised frm 45.9); the expectations index at 72.3 frm 77.3 (revised frm 77.6). The confidence index is the lowest since last January and the expectations index the lowest since last November. No reaction to the weaker data, yet it is another weak report as most reports have been the last six weeks.
At 1:00 Treasury will auction $35B of 2 yr notes; demand is expected to be OK but not stellar.
Europe still is the centerpiece for global market outlooks as the region is completely unable to solve the debt issues in the EU. Thursday begins the 19th summit meeting since 2010 when the crisis began; no progress so far in attacking the problems head on and there isn’t likely to any progress this time around. Four officials led by European Union President Herman Van Rompuy today released a road map to a fiscal and banking union that ran into immediate criticism from Germany for placing too little emphasis on controlling national budgets. The “map” centered on common banking supervision and deposit insurance and a “criteria-based and phased” move toward joint debt issuance. It also suggests that the EU could impose upper limits on annual budgets and debt levels of nations that use the euro. Germany’s instant opposition lessened the chances that the summit will end with any plan once again. Nero was said to have sat and played his lute while Rome burned down, today Europe is burning while all the leaders play their fiddles.
US interest rates remain essentially unchanged now for the last three weeks; improving yesterday and this morning falling back. There is little chance the bond and mortgage markets will change much until the end of the circus known as the EU summit meeting that concludes on Friday. Based on news reports this morning it appears it will be another summit that fails to accomplish much and in turn should keep US interest rates from increasing. We still hold that as long as the bellwether 10 yr note can hold under 1.70% the outlook will remain positive for the bond markets.
Monday, June 25, 2012
Mortgage Rates
The backing and filling is continuing to day in early activity; the 10 yr note is improving as are mortgage prices while the stock indexes are opening lower. The 10 yr yield has ranged from a high of 1.68% and a low of 1.57% over the last three weeks, mortgage rates have ranged just 6 basis points in rate on 30 yr mortgages in the same time frame. The Fed has revised its economic growth outlook lower for the first time since last November, mostly based on the decline in Europe’s economy. On Thursday and Friday there is an EU summit meeting that isn’t likely to resolve much; meeting upon meeting over the last two years has not accomplished anything of significance for the long run; just putting out brush fires. This time should be no different as Germany remains opposed to a plan that would set up deposit insurance fund to protect all depositors against failures. Germany stands opposed to any plan that allows individual states to set their own austerity targets.
Billionaire investor George Soros called on Europe to start a fund to buy Italian and Spanish bonds, warning that a failure by leaders meeting on June 28 to produce drastic measures could spell the demise of the currency. German Chancellor Angela Merkel said in a June 15 speech that she opposed “premature” proposals for issuing euro-area bonds. Spain formally requested a bailout for its banks as it negotiated details of the aid. A few weeks ago Soros commented the EU had 90 days to work out a solution before the euro currency would collapse. Europe’s debt crisis is putting pressure on corporate earnings globally with companies cutting forecasts and signaling profits will fall at more companies this year.
Early this morning the 10 yr note traded up 18/32 at 1.61% and 30 yr FNMAs were up as much as 8/32 (.25 bp), by 9:30 the 10 was up 14/32 and 30 yr Fannie up 4/32 (.12 bp). The DJIA opened -90, NASDAQ -33; the 10 yr up 16/32 at 1.62% -5 bp and 30 yr MBS prices +6/32 (.18 bp). Markets expecting the Supreme Court decision sometime today; talk that the ruling would be announced at 10:00.
At 10:00 May new home sales were expected to be up 2.0% frm April; as reported sales jumped 7.6% to 369K units (annualized); April sales however were revised lower, from +3.3% to -1.2%. Based on the sales pace there is a dwindling supply, 4.7 months down from 5 months in April. The median sales price at $234,500 up 5.6% yr/yr. Sales total was the largest since April 2010; the 4.7 month supply is the lowest since Oct 2005. There was no initial reaction to the report in the stock or bond markets.
This week has Treasury selling $99B of notes Tuesday through Thursday. There are a number of key data points; May consumer confidence, May durable goods orders, weekly claims, May personal income and spending, June Chicago purchasing mgrs. index lead the parade.
The recent trading ranges in the treasury and mortgage markets are likely to hold any movement this week. The EU summit isn’t getting any respect from the markets with Germany continuing to resist about any idea tossed out for consideration. As long as Germany is unwilling to bend (and take on more risk) there is little chance there is going to be an acceptable long range “plan”. Germany won’t move off its stringent objections to anything as long as it isn’t forced to do so. The force would come when the German economy softens more and the German bond market comes under pressure; so far German debt yields very low rates as demand for its debt from Europeans continues robust.
The backing and filling is continuing to day in early activity; the 10 yr note is improving as are mortgage prices while the stock indexes are opening lower. The 10 yr yield has ranged from a high of 1.68% and a low of 1.57% over the last three weeks, mortgage rates have ranged just 6 basis points in rate on 30 yr mortgages in the same time frame. The Fed has revised its economic growth outlook lower for the first time since last November, mostly based on the decline in Europe’s economy. On Thursday and Friday there is an EU summit meeting that isn’t likely to resolve much; meeting upon meeting over the last two years has not accomplished anything of significance for the long run; just putting out brush fires. This time should be no different as Germany remains opposed to a plan that would set up deposit insurance fund to protect all depositors against failures. Germany stands opposed to any plan that allows individual states to set their own austerity targets.
Billionaire investor George Soros called on Europe to start a fund to buy Italian and Spanish bonds, warning that a failure by leaders meeting on June 28 to produce drastic measures could spell the demise of the currency. German Chancellor Angela Merkel said in a June 15 speech that she opposed “premature” proposals for issuing euro-area bonds. Spain formally requested a bailout for its banks as it negotiated details of the aid. A few weeks ago Soros commented the EU had 90 days to work out a solution before the euro currency would collapse. Europe’s debt crisis is putting pressure on corporate earnings globally with companies cutting forecasts and signaling profits will fall at more companies this year.
Early this morning the 10 yr note traded up 18/32 at 1.61% and 30 yr FNMAs were up as much as 8/32 (.25 bp), by 9:30 the 10 was up 14/32 and 30 yr Fannie up 4/32 (.12 bp). The DJIA opened -90, NASDAQ -33; the 10 yr up 16/32 at 1.62% -5 bp and 30 yr MBS prices +6/32 (.18 bp). Markets expecting the Supreme Court decision sometime today; talk that the ruling would be announced at 10:00.
At 10:00 May new home sales were expected to be up 2.0% frm April; as reported sales jumped 7.6% to 369K units (annualized); April sales however were revised lower, from +3.3% to -1.2%. Based on the sales pace there is a dwindling supply, 4.7 months down from 5 months in April. The median sales price at $234,500 up 5.6% yr/yr. Sales total was the largest since April 2010; the 4.7 month supply is the lowest since Oct 2005. There was no initial reaction to the report in the stock or bond markets.
This week has Treasury selling $99B of notes Tuesday through Thursday. There are a number of key data points; May consumer confidence, May durable goods orders, weekly claims, May personal income and spending, June Chicago purchasing mgrs. index lead the parade.
The recent trading ranges in the treasury and mortgage markets are likely to hold any movement this week. The EU summit isn’t getting any respect from the markets with Germany continuing to resist about any idea tossed out for consideration. As long as Germany is unwilling to bend (and take on more risk) there is little chance there is going to be an acceptable long range “plan”. Germany won’t move off its stringent objections to anything as long as it isn’t forced to do so. The force would come when the German economy softens more and the German bond market comes under pressure; so far German debt yields very low rates as demand for its debt from Europeans continues robust.
Friday, June 22, 2012
Mortgage Rates
Treasuries and mortgages opened slightly weaker this morning with stock indexes a little better early on after the DJIA dropped 251 points yesterday. There are no data releases today and being Friday markets are likely to be rather mundane through the day.
Late yesterday afternoon Moody’s lowered credit ratings on 15 US and global banks, commenting the deterioration in debt quality has become worrisome. That Moody’s lowered big banks hasn’t caused any serious reaction, in fact after the ratings were announced the banks affected actually rallied in after-market trading yesterday. Moody’s announced last February it was analyzing banks in the wake of Europe’s debt crisis and originally the credit rating cuts were expected in May but Moody’s is saying it delayed it to give additional time to do its homework. The idea is that with lower credit ratings borrowing costs would increase, in this case that isn’t very likely as borrowing costs are so low and in some sense it is all relative in that most of the big banks fell together. One big bank commented the move was backward thinking as most banks that were cut were already beefing up their balance sheets. US banks downgraded; Citi, BofA, Goldman Sachs, JP Morgan Chase and Morgan Stanley. Moody’s lowered rating based primarily on its outlook that global growth is declining.
The evidence of global slowing continues almost daily; today German business confidence fell to the lowest in more than two years in June as the worsening sovereign debt crisis clouded the economic outlook. The Munich-based Ifo institute said today its business climate index, based on a survey of 7,000 executives, dropped for a second straight month to 105.3 from 106.9 in May. That’s the lowest reading since March 2010. Yesterday a survey of purchasing managers showed German manufacturing is contracting at the fastest pace in three years. He strongest economy in the euro region is sliding rapidly as the EU struggles to find a plan to shore up banks in Spain and Italy, work out a plan to keep Greece from crumbling and help Ireland and Portugal. In Italy, an index of consumer confidence fell to 85.3 in June, the lowest since the data series began in 1996, from 86.5 in May.
Next week (28th and 29th) the EU will hold another summit meeting to TRY to find a solution to Europe’s debt and economic crises. The land of constant meetings continues with increasing loss of confidence that there is anything that will come of it. In the meantime the European Commission forecasts the euro-area economy will shrink 0.3 percent this year. At least eight member states are in recession. Spain’s 10-year bond yield surged above 7 percent this month, the level that prompted Greece, Portugal and Ireland to seek bailouts.
At 9:30 the DJIA opened +68, NASDAQ +10; the 10 yr note -13/32 at 1.66%. MBS 30 yr mortgage prices -4/32 (.12 bp) frm yesterday’s close.
Mortgage rates and treasury rates are confined within a narrow trading ranges. The bellwether 10 yr note since early June has stayed in a 10 to 12 basis point range with its 20 day average at 1.66% with the note at the moment at 1.65%, so far the 10 yr has note moved above its 20 day average on the yield since early April. 30 yr mortgages also holding its 20 day average on selling since early April. The relative strength index, measure of market momentum, on the 10 yr and MBSs remains slightly bullish. The Fed’s extension of Operation Twist through the rest of the year announced on Wednesday, isn’t pushing rates lower;$267B of buying at the long end of the curve isn’t likely to have much impact. The direction for rates over the next month will be decided by what happens in Europe and the EU summit next week. IF, and it is a huge IF, somehow Europe develops a plan to keep banks from failing and finds a way to support the debt crisis US interest rates will likely increase a little as safety moves into US treasuries will be unwound.
Treasuries and mortgages opened slightly weaker this morning with stock indexes a little better early on after the DJIA dropped 251 points yesterday. There are no data releases today and being Friday markets are likely to be rather mundane through the day.
Late yesterday afternoon Moody’s lowered credit ratings on 15 US and global banks, commenting the deterioration in debt quality has become worrisome. That Moody’s lowered big banks hasn’t caused any serious reaction, in fact after the ratings were announced the banks affected actually rallied in after-market trading yesterday. Moody’s announced last February it was analyzing banks in the wake of Europe’s debt crisis and originally the credit rating cuts were expected in May but Moody’s is saying it delayed it to give additional time to do its homework. The idea is that with lower credit ratings borrowing costs would increase, in this case that isn’t very likely as borrowing costs are so low and in some sense it is all relative in that most of the big banks fell together. One big bank commented the move was backward thinking as most banks that were cut were already beefing up their balance sheets. US banks downgraded; Citi, BofA, Goldman Sachs, JP Morgan Chase and Morgan Stanley. Moody’s lowered rating based primarily on its outlook that global growth is declining.
The evidence of global slowing continues almost daily; today German business confidence fell to the lowest in more than two years in June as the worsening sovereign debt crisis clouded the economic outlook. The Munich-based Ifo institute said today its business climate index, based on a survey of 7,000 executives, dropped for a second straight month to 105.3 from 106.9 in May. That’s the lowest reading since March 2010. Yesterday a survey of purchasing managers showed German manufacturing is contracting at the fastest pace in three years. He strongest economy in the euro region is sliding rapidly as the EU struggles to find a plan to shore up banks in Spain and Italy, work out a plan to keep Greece from crumbling and help Ireland and Portugal. In Italy, an index of consumer confidence fell to 85.3 in June, the lowest since the data series began in 1996, from 86.5 in May.
Next week (28th and 29th) the EU will hold another summit meeting to TRY to find a solution to Europe’s debt and economic crises. The land of constant meetings continues with increasing loss of confidence that there is anything that will come of it. In the meantime the European Commission forecasts the euro-area economy will shrink 0.3 percent this year. At least eight member states are in recession. Spain’s 10-year bond yield surged above 7 percent this month, the level that prompted Greece, Portugal and Ireland to seek bailouts.
At 9:30 the DJIA opened +68, NASDAQ +10; the 10 yr note -13/32 at 1.66%. MBS 30 yr mortgage prices -4/32 (.12 bp) frm yesterday’s close.
Mortgage rates and treasury rates are confined within a narrow trading ranges. The bellwether 10 yr note since early June has stayed in a 10 to 12 basis point range with its 20 day average at 1.66% with the note at the moment at 1.65%, so far the 10 yr has note moved above its 20 day average on the yield since early April. 30 yr mortgages also holding its 20 day average on selling since early April. The relative strength index, measure of market momentum, on the 10 yr and MBSs remains slightly bullish. The Fed’s extension of Operation Twist through the rest of the year announced on Wednesday, isn’t pushing rates lower;$267B of buying at the long end of the curve isn’t likely to have much impact. The direction for rates over the next month will be decided by what happens in Europe and the EU summit next week. IF, and it is a huge IF, somehow Europe develops a plan to keep banks from failing and finds a way to support the debt crisis US interest rates will likely increase a little as safety moves into US treasuries will be unwound.
Thursday, June 21, 2012
Wednesday, June 20, 2012
Mortgage Rates
Treasuries and mortgages opened weaker this morning ahead of the FOMC statement at 12:30 this afternoon. The consensus is that the Fed will extend Operation Twist at the meeting. The view of more buying at the long end while selling short maturities has grown rapidly this week so it’s likely that the Fed will bow to the markets. Fifty-eight percent of respondents in a June 18 poll said the Fed will prolong the program, which seeks to lower borrowing costs by extending the average maturity of the securities in the central bank’s portfolio. At the same time, with inflation close to their 2% goal and the Greek election reducing the risk of a euro breakup, they may decide an additional round of quantitative easing isn’t needed for now The current program ends this month. At 2:00 this afternoon Bernanke will hold his press conference, generally just more detail about the meeting but Q&A should be interesting given Europe and its impact on the global economy.
Bank of England Governor King was overruled for the first time in almost three years today as he joined a push to expand stimulus that’s gathering momentum as the danger of Europe’s debt crisis intensifies. The Monetary Policy Committee voted 5-4 to keep its bond-purchase target at 325 billion pounds ($511 billion) this month. That defeated votes by King and two other committee members for a 50 billion-pound expansion.
Now that the Greek election is over and a new government has been formed there is at the moment a sliver of optimism that the various political bodies will act to provide some relief to the region’s massive debt and banking problems. This morning interest rates in Spain and Italy are lower; the yield on the Spanish 10-year bond fell 27 basis points to 6.77%, the Italian 10 yr yield 17 basis points lower. The yield on the German 10-year bund rose eight basis points this morning and US 10 yr is 5 bp higher this morning. Less fear leads to higher US rates; a month ago the German 10 yr yield was 45 basis points lower than US 10 yr, now the spread has tightened to 5 basis points, the tightening is a result of German rates increasing rapidly.
Last week the MBA reported applications for purchases increased 13% while re-finances were up 19% frm the previous week. This week the MBA mortgage applications index fell 0.8%, the purchase index down 9.0% while the re-finance index is up 1.0%. The MBA calls a 9.0% plunge in purchase applications for home mortgages a "recalibration" following the Memorial Day holiday and it notes that activity remains within a narrow 3-year band. The report noting that the refinance composition held up due to FHA loans as related premiums on streamlined loans came fully into effect allowing borrowers to lower their rates without increasing their FHA premiums. Refinances accounted for 83% of all apps last week.
The G-20 meeting in Mexico, as usual when global leaders meet, there isn’t anything of substance; posturing and photo ops and comments that are the same as markets have waded through for the last two years.
The 10 yr note yield has now moved above its 20 day average at 1.65%, and is testing the relative strength index at the 50 level for the first time since early April when the index fell below 50. Technically the rate markets are weakening, although so far haven’t turned completely bearish. The next few days from a purely technical perspective will be important or the outlook for interest rates. With Greece having formed a new government there is a little less push to safety that has contributed to the recent decline in US interest rates
Treasuries and mortgages opened weaker this morning ahead of the FOMC statement at 12:30 this afternoon. The consensus is that the Fed will extend Operation Twist at the meeting. The view of more buying at the long end while selling short maturities has grown rapidly this week so it’s likely that the Fed will bow to the markets. Fifty-eight percent of respondents in a June 18 poll said the Fed will prolong the program, which seeks to lower borrowing costs by extending the average maturity of the securities in the central bank’s portfolio. At the same time, with inflation close to their 2% goal and the Greek election reducing the risk of a euro breakup, they may decide an additional round of quantitative easing isn’t needed for now The current program ends this month. At 2:00 this afternoon Bernanke will hold his press conference, generally just more detail about the meeting but Q&A should be interesting given Europe and its impact on the global economy.
Bank of England Governor King was overruled for the first time in almost three years today as he joined a push to expand stimulus that’s gathering momentum as the danger of Europe’s debt crisis intensifies. The Monetary Policy Committee voted 5-4 to keep its bond-purchase target at 325 billion pounds ($511 billion) this month. That defeated votes by King and two other committee members for a 50 billion-pound expansion.
Now that the Greek election is over and a new government has been formed there is at the moment a sliver of optimism that the various political bodies will act to provide some relief to the region’s massive debt and banking problems. This morning interest rates in Spain and Italy are lower; the yield on the Spanish 10-year bond fell 27 basis points to 6.77%, the Italian 10 yr yield 17 basis points lower. The yield on the German 10-year bund rose eight basis points this morning and US 10 yr is 5 bp higher this morning. Less fear leads to higher US rates; a month ago the German 10 yr yield was 45 basis points lower than US 10 yr, now the spread has tightened to 5 basis points, the tightening is a result of German rates increasing rapidly.
Last week the MBA reported applications for purchases increased 13% while re-finances were up 19% frm the previous week. This week the MBA mortgage applications index fell 0.8%, the purchase index down 9.0% while the re-finance index is up 1.0%. The MBA calls a 9.0% plunge in purchase applications for home mortgages a "recalibration" following the Memorial Day holiday and it notes that activity remains within a narrow 3-year band. The report noting that the refinance composition held up due to FHA loans as related premiums on streamlined loans came fully into effect allowing borrowers to lower their rates without increasing their FHA premiums. Refinances accounted for 83% of all apps last week.
The G-20 meeting in Mexico, as usual when global leaders meet, there isn’t anything of substance; posturing and photo ops and comments that are the same as markets have waded through for the last two years.
The 10 yr note yield has now moved above its 20 day average at 1.65%, and is testing the relative strength index at the 50 level for the first time since early April when the index fell below 50. Technically the rate markets are weakening, although so far haven’t turned completely bearish. The next few days from a purely technical perspective will be important or the outlook for interest rates. With Greece having formed a new government there is a little less push to safety that has contributed to the recent decline in US interest rates
Mortgage Rates
Mortgage Rates
Treasuries and mortgages opened weaker this morning ahead of the FOMC statement at 12:30 this afternoon. The consensus is that the Fed will extend Operation Twist at the meeting. The view of more buying at the long end while selling short maturities has grown rapidly this week so it’s likely that the Fed will bow to the markets. Fifty-eight percent of respondents in a June 18 poll said the Fed will prolong the program, which seeks to lower borrowing costs by extending the average maturity of the securities in the central bank’s portfolio. At the same time, with inflation close to their 2% goal and the Greek election reducing the risk of a euro breakup, they may decide an additional round of quantitative easing isn’t needed for now The current program ends this month. At 2:00 this afternoon Bernanke will hold his press conference, generally just more detail about the meeting but Q&A should be interesting given Europe and its impact on the global economy.
Bank of England Governor King was overruled for the first time in almost three years today as he joined a push to expand stimulus that’s gathering momentum as the danger of Europe’s debt crisis intensifies. The Monetary Policy Committee voted 5-4 to keep its bond-purchase target at 325 billion pounds ($511 billion) this month. That defeated votes by King and two other committee members for a 50 billion-pound expansion.
Now that the Greek election is over and a new government has been formed there is at the moment a sliver of optimism that the various political bodies will act to provide some relief to the region’s massive debt and banking problems. This morning interest rates in Spain and Italy are lower; the yield on the Spanish 10-year bond fell 27 basis points to 6.77%, the Italian 10 yr yield 17 basis points lower. The yield on the German 10-year bund rose eight basis points this morning and US 10 yr is 5 bp higher this morning. Less fear leads to higher US rates; a month ago the German 10 yr yield was 45 basis points lower than US 10 yr, now the spread has tightened to 5 basis points, the tightening is a result of German rates increasing rapidly.
Last week the MBA reported applications for purchases increased 13% while re-finances were up 19% frm the previous week. This week the MBA mortgage applications index fell 0.8%, the purchase index down 9.0% while the re-finance index is up 1.0%. The MBA calls a 9.0% plunge in purchase applications for home mortgages a "recalibration" following the Memorial Day holiday and it notes that activity remains within a narrow 3-year band. The report noting that the refinance composition held up due to FHA loans as related premiums on streamlined loans came fully into effect allowing borrowers to lower their rates without increasing their FHA premiums. Refinances accounted for 83% of all apps last week.
The G-20 meeting in Mexico, as usual when global leaders meet, there isn’t anything of substance; posturing and photo ops and comments that are the same as markets have waded through for the last two years.
The 10 yr note yield has now moved above its 20 day average at 1.65%, and is testing the relative strength index at the 50 level for the first time since early April when the index fell below 50. Technically the rate markets are weakening, although so far haven’t turned completely bearish. The next few days from a purely technical perspective will be important or the outlook for interest rates. With Greece having formed a new government there is a little less push to safety that has contributed to the recent decline in US interest rates
Friday, June 15, 2012
Mortgage Rates
Treasuries, mortgages and the stock indexes all better early this morning. Prior to 8:30 stock indexes were higher than at 8:30 after the June NY Empire State manufacturing report was very weak. The index was expected at 10.0 frm 13.5 last month, as reported the index fell to 2.29 with May revised to 17.09. The components also weaker; new orders at 2.18 frm 8.32, employment at 12.37 frm 20.48 and prices pd at 19.59 frm 37.35. Readings greater than zero signal expansion in the so-called Empire State Index, which covers New York, northern New Jersey and southern Connecticut. The last negative reading was in October. Factory executives in the New York Fed’s district were also less optimistic about the future. A measure of the outlook six months from now fell in June to 23.1, the lowest since October, from 29.3 the month earlier.
The next data hit at 9:15; May industrial production and factory usage. Production was expected to be up 0.1%, it declined 0.1%. May factory use expected at 79.2% fell to 79.0% but still the highest level or three years. The reaction was minor initially but by 9:30 treasuries and mortgages were at their best levels of the session so far.
The Greek election on Sunday is the dominating factor for the markets today; Greece will vote on whether it wants to say or leave the EU, meanwhile the EU leaders do not want Greece to depart, fearing other countries will walk. Yesterday afternoon news out of the region that central banks in the EU were prepared to provide additional funds to Greece to help Greece lessen the austerity forced on the country by the EU lead by Germany’s insistence that Greece cut spending, cut employment and increase taxes. Greek citizens are rebelling, the vote for the party that calls for staying in the EU or the party that wants to leave, according to polls is too close to call. Central banks intensified warnings that Europe’s failure to tame its debt crisis threatens to roil the world’s financial markets and economy as Greece’s election in two days looms as the next flashpoint for investors.
At 9:30 the DJIA opened +50, NASDSAQ +6. The 10 yr note yield at 9:30 1.58% -6 bp and 30 yr MBSs +9/32 (.28 bp) frm yesterday’s close.
The U. of Michigan consumer sentiment index hit at 9:55, thoughts that the index would decline to 77.0 from May final at 79.3, the index fell to74.1; the expectations index at 68.9 frm 74.3, current conditions at 82.1 frm 87.2, both the lowest since last December. The 12 month outlook index at 82.0 frm 91.0. Although the report is weaker than thought it didn’t have any immediate impact on the stock market or the rate markets. Investors continue to believe a Fed easing will turn the economic outlook. That said, these days there isn’t much investor money in the stock market, its all computers and traders; those with a time frame of ore that a week or two are sitting this uncertainty out.
Honk if you heard this before. European Union leaders will press for new efforts to boost economic growth and improve lending conditions when they meet later this month, according to a draft document prepared for a June 28-29 summit in Brussels. The 27-nation bloc will pursue growth measures at a time when, in the words of European Central Bank President Mario Draghi, “there is no inflation risk in any European country” and the ECB will continue to provide liquidity to the banking system.
The recent economic reports have heightened expectations the Fed will ease again when the FOMC meets next week. The data has confirmed the US economy is slowing, being dragged down by Europe’s inability to find a solution to its debt problems. While the softening in the outlook is real, the Fed isn’t likely to ease much, we expect the FOMC to announce an extension to Operation Twist that will expire at the end of this month. Extending the Twist will help keep long term interest rates from increasing much, but there isn’t any evidence that it will help the economy much. Until Europe is settled with plans that make sense to stimulate its economies, growth will continue to stall.
Treasuries, mortgages and the stock indexes all better early this morning. Prior to 8:30 stock indexes were higher than at 8:30 after the June NY Empire State manufacturing report was very weak. The index was expected at 10.0 frm 13.5 last month, as reported the index fell to 2.29 with May revised to 17.09. The components also weaker; new orders at 2.18 frm 8.32, employment at 12.37 frm 20.48 and prices pd at 19.59 frm 37.35. Readings greater than zero signal expansion in the so-called Empire State Index, which covers New York, northern New Jersey and southern Connecticut. The last negative reading was in October. Factory executives in the New York Fed’s district were also less optimistic about the future. A measure of the outlook six months from now fell in June to 23.1, the lowest since October, from 29.3 the month earlier.
The next data hit at 9:15; May industrial production and factory usage. Production was expected to be up 0.1%, it declined 0.1%. May factory use expected at 79.2% fell to 79.0% but still the highest level or three years. The reaction was minor initially but by 9:30 treasuries and mortgages were at their best levels of the session so far.
The Greek election on Sunday is the dominating factor for the markets today; Greece will vote on whether it wants to say or leave the EU, meanwhile the EU leaders do not want Greece to depart, fearing other countries will walk. Yesterday afternoon news out of the region that central banks in the EU were prepared to provide additional funds to Greece to help Greece lessen the austerity forced on the country by the EU lead by Germany’s insistence that Greece cut spending, cut employment and increase taxes. Greek citizens are rebelling, the vote for the party that calls for staying in the EU or the party that wants to leave, according to polls is too close to call. Central banks intensified warnings that Europe’s failure to tame its debt crisis threatens to roil the world’s financial markets and economy as Greece’s election in two days looms as the next flashpoint for investors.
At 9:30 the DJIA opened +50, NASDSAQ +6. The 10 yr note yield at 9:30 1.58% -6 bp and 30 yr MBSs +9/32 (.28 bp) frm yesterday’s close.
The U. of Michigan consumer sentiment index hit at 9:55, thoughts that the index would decline to 77.0 from May final at 79.3, the index fell to74.1; the expectations index at 68.9 frm 74.3, current conditions at 82.1 frm 87.2, both the lowest since last December. The 12 month outlook index at 82.0 frm 91.0. Although the report is weaker than thought it didn’t have any immediate impact on the stock market or the rate markets. Investors continue to believe a Fed easing will turn the economic outlook. That said, these days there isn’t much investor money in the stock market, its all computers and traders; those with a time frame of ore that a week or two are sitting this uncertainty out.
Honk if you heard this before. European Union leaders will press for new efforts to boost economic growth and improve lending conditions when they meet later this month, according to a draft document prepared for a June 28-29 summit in Brussels. The 27-nation bloc will pursue growth measures at a time when, in the words of European Central Bank President Mario Draghi, “there is no inflation risk in any European country” and the ECB will continue to provide liquidity to the banking system.
The recent economic reports have heightened expectations the Fed will ease again when the FOMC meets next week. The data has confirmed the US economy is slowing, being dragged down by Europe’s inability to find a solution to its debt problems. While the softening in the outlook is real, the Fed isn’t likely to ease much, we expect the FOMC to announce an extension to Operation Twist that will expire at the end of this month. Extending the Twist will help keep long term interest rates from increasing much, but there isn’t any evidence that it will help the economy much. Until Europe is settled with plans that make sense to stimulate its economies, growth will continue to stall.
Thursday, June 14, 2012
Mortgage Rates
Weekly jobless claims this morning were worse than thought; claims were up 6K to 386K, climbing closer to the 400K level markets deem significant. Nevertheless claims are on the increase over the last month, falling to 350K level a month ago, and each week for the last three revisions have been higher. Last week originally at 375K were revised to 380K. Continuing claims fell 33K last week.
May consumer price index was -0.3$ in line with estimates, the core (ex food and energy) +0.2% a little higher than 0.1% expected. Yr/yr overall CPI +1.7% while yr/yr core up 2.3%, a little stronger than thought but not a problem for the inflation outlook.
Q1 current account deficit was much higher than expected, at -$177.3B compared to -$130.9B on the advance look last month; no reaction to it though.
At 9:30 the DJIA opened +12, NASDAQ -3; the 10 yr note traded unchanged and mortgage prices for 30 yr conventional loans -2/32 (.06 bp).
As this week progresses the idea that the FOMC meeting next week will announce another easing move from the Fed is gaining, the idea was further fueled this morning on the increasing weekly unemployment claims. The easiest thing the Fed could do is to extend Operation Twist that is set to expire at the end of the month; the more aggressive move from the Fed would be an outright easing move that keeps the Twist and adds additional Fed buying of notes and bonds. This morning investors and traders are keeping the stock indexes frm falling as they would with the weak claims report, but with increasing belief the Fed will act the equity market is holding well resulting in keeping the bond and mortgage markets in check.
This afternoon Treasury will complete the auctions with $13B of 30 yr bonds; yesterday’s 10 yr auction went OK, not a record setter but in the range of average.
Record-low mortgage rates are triggering a surge in refinancing, which combined with the lowest fuel prices in four months and stabilization in stocks, may be easing constraints on Americans’ financial resources. Consumer confidence in the U.S. climbed for the fourth straight week as more Americans said their personal finances were improving. The Bloomberg Consumer Comfort Index rose to minus 36.4 in the week ended June 10, the highest level since late April, from minus 37.6 the prior period. Each of its three components -- the economy, finances and buying plans -- advanced.
Next week, along with the Greek election and the FOMC meeting, there is a G-20 meeting in Mexico. Germany already setting some of the agenda that the IMF through the G-20 has to help with the debts it cannot pay. Chancellor Angela Merkel rejected quick solutions proposed to fix Europe’s financial crisis such as joint debt sharing, saying Germany can’t save the world economy alone and fellow Group of 20 countries must help. It is unlikely the IMF will step in though with the US unwilling to get too involved at this point. On the Greek elections; the ephemeral view now is that no matter how the elections turn out, Greece will get more money as its exit of the EU would likely set off more countries leaving.
Weekly jobless claims this morning were worse than thought; claims were up 6K to 386K, climbing closer to the 400K level markets deem significant. Nevertheless claims are on the increase over the last month, falling to 350K level a month ago, and each week for the last three revisions have been higher. Last week originally at 375K were revised to 380K. Continuing claims fell 33K last week.
May consumer price index was -0.3$ in line with estimates, the core (ex food and energy) +0.2% a little higher than 0.1% expected. Yr/yr overall CPI +1.7% while yr/yr core up 2.3%, a little stronger than thought but not a problem for the inflation outlook.
Q1 current account deficit was much higher than expected, at -$177.3B compared to -$130.9B on the advance look last month; no reaction to it though.
At 9:30 the DJIA opened +12, NASDAQ -3; the 10 yr note traded unchanged and mortgage prices for 30 yr conventional loans -2/32 (.06 bp).
As this week progresses the idea that the FOMC meeting next week will announce another easing move from the Fed is gaining, the idea was further fueled this morning on the increasing weekly unemployment claims. The easiest thing the Fed could do is to extend Operation Twist that is set to expire at the end of the month; the more aggressive move from the Fed would be an outright easing move that keeps the Twist and adds additional Fed buying of notes and bonds. This morning investors and traders are keeping the stock indexes frm falling as they would with the weak claims report, but with increasing belief the Fed will act the equity market is holding well resulting in keeping the bond and mortgage markets in check.
This afternoon Treasury will complete the auctions with $13B of 30 yr bonds; yesterday’s 10 yr auction went OK, not a record setter but in the range of average.
Record-low mortgage rates are triggering a surge in refinancing, which combined with the lowest fuel prices in four months and stabilization in stocks, may be easing constraints on Americans’ financial resources. Consumer confidence in the U.S. climbed for the fourth straight week as more Americans said their personal finances were improving. The Bloomberg Consumer Comfort Index rose to minus 36.4 in the week ended June 10, the highest level since late April, from minus 37.6 the prior period. Each of its three components -- the economy, finances and buying plans -- advanced.
Next week, along with the Greek election and the FOMC meeting, there is a G-20 meeting in Mexico. Germany already setting some of the agenda that the IMF through the G-20 has to help with the debts it cannot pay. Chancellor Angela Merkel rejected quick solutions proposed to fix Europe’s financial crisis such as joint debt sharing, saying Germany can’t save the world economy alone and fellow Group of 20 countries must help. It is unlikely the IMF will step in though with the US unwilling to get too involved at this point. On the Greek elections; the ephemeral view now is that no matter how the elections turn out, Greece will get more money as its exit of the EU would likely set off more countries leaving.
Wednesday, June 13, 2012
Mortgage Rates
Prior to 8:30 this morning the rate markets were a little weaker in price; the 10 yr note -6/32 at 1.68% and mortgage prices -3/32 (.09 bp). At 8:30 May retail sales were reported -0.2% about in line with forecasts, the core (ex auto sales) -0.4% weaker than thought. April retail sales was revised from +0.1% to -0.2%, April ex autos revised from +0.1% to -0.3%. The revisions to April caused stock indexes to decline with the DJIA futures -53 at 9:00. Also at 8:30 May producer price index, expected -0.4%, fell 1.0%; ex food and energy +0.2%; yr/yr PPI +0.7% but yr/yr core +2.7%. The April revisions supported the bond and mortgage markets; at 9:00 the 10 yr +6/32 at 1.64% and MBS 30 yr price +3/32 (.09 bp).
European leaders may consider relaxing Greece’s austerity program after election, the Financial Times edition reported without citing anyone. Syriza’s leader, the Greek party that wants to keep Greece in the EU, wrote in the Financial Times that his party is committed to keeping the country in the euro area and will seek to amend a bailout agreement the nation signed in March with the European Union and the International Monetary Fund. In the final polls before this week’s vote showed the New Democracy party retaining its lead over Syriza, with the support of 26.1% of 1,012 Greeks surveyed. Syriza had 23.6%. That poll showed that Syriza gained 3.5 points in a week, compared with less than a percentage point for New Democracy. Sunday Greeks will vote once more after there was no consensus two months ago at the last election.
Escalating borrowing costs and shrinking output are opening divisions among EU leaders who face a series of hurdles in the coming days as bond investors question their ability to hold the euro area together. Spain and Italy appealed to European policy makers to step up their response to the financial crisis after a 100 billion-euro ($125 billion) lifeline for Spanish banks failed to calm markets. Spanish Prime Minister Mariano Rajoy said today he’ll “battle” central bankers refusing to buy debt from peripheral nations. Rajoy published a letter to European Union leaders calling for the European Central Bank to buy debt from the countries struggling to shore up their finances. Still about as much uncertainty today as has been the case for over two years; as long as it continues money of al denominations will continue to seek safety rather than assume risk.
Mortgage applications increased 18.0% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) the week ending June 8, 2012. The week’s results included an adjustment for the Memorial Day holiday. The Refinance Index increased over 19% from the previous week to the highest index level since April 2009. The seasonally adjusted Purchase Index increased around 13% from one week earlier. The refinance share of mortgage activity increased to 79% of total applications from 78% the previous week. The adjustable-rate mortgage (ARM) share of activity remains around 5 percent of total applications from the previous week. The average loan size of all loans for home purchase in the US was $243,733 in May 2012, up from $238,135 in April 2012. The average loan size for a refinance was $226,576, up from $219,664 in April. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) increased to 3.88% from 3.87%, with points decreasing to 0.43 from 0.46 (including the origination fee) for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,500) decreased to 4.12% from 4.13%, with points increasing to 0.41 from 0.35 (including the origination fee) for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA increased to 3.71% from 3.70%, with points decreasing to 0.59 from 0.60 (including the origination fee) for 80% loans. The average contract interest rate for 15-year fixed-rate mortgages increased to 3.23% from 3.20%, with points increasing to 0.48 from 0.46 (including the origination fee) for 80% loans.
At 9:30 this morning the DJIA opened -38, NASDAQ -12. The 10 yr at 9:30 +5/32 at 1.65% -1 bp and 30 yr mortgage price +3/32 (.09 bp) frm yesterday’s close.
At 10:00 April business inventories expected +0.2% increased 0.4%. Sales up 0.2%; the inventory to sales ratio 1.26 months. March sales were revised frm +0.6% to +0.2%.
At 1:00 Treasury will auction $21B of 10 yr notes, yesterday’s 3 yr note auction was OK but not real solid. The demand for today’s 10 yr will be closely watched as an indication on whether investors are pulling back from the safety moves over Europe.
Technically, the 10 yr note remains in bullish shape; as long as it doesn’t climb over 1.70% the outlook will remain positive. A close over 1.70% on the 10 will likely temper the bullish view, however to change the longer term view the 10 would have to close over 1.76%. MBS prices also still technically bullish; the July 30 yr FNMA coupon must hold above 104.23 bp, presently 104.78 bp. At 10:00 this morning the 10 yr note was at 1.63%, a close under 1.60% would break the uptrend that has increased the yield for the last 8 sessions.
Prior to 8:30 this morning the rate markets were a little weaker in price; the 10 yr note -6/32 at 1.68% and mortgage prices -3/32 (.09 bp). At 8:30 May retail sales were reported -0.2% about in line with forecasts, the core (ex auto sales) -0.4% weaker than thought. April retail sales was revised from +0.1% to -0.2%, April ex autos revised from +0.1% to -0.3%. The revisions to April caused stock indexes to decline with the DJIA futures -53 at 9:00. Also at 8:30 May producer price index, expected -0.4%, fell 1.0%; ex food and energy +0.2%; yr/yr PPI +0.7% but yr/yr core +2.7%. The April revisions supported the bond and mortgage markets; at 9:00 the 10 yr +6/32 at 1.64% and MBS 30 yr price +3/32 (.09 bp).
European leaders may consider relaxing Greece’s austerity program after election, the Financial Times edition reported without citing anyone. Syriza’s leader, the Greek party that wants to keep Greece in the EU, wrote in the Financial Times that his party is committed to keeping the country in the euro area and will seek to amend a bailout agreement the nation signed in March with the European Union and the International Monetary Fund. In the final polls before this week’s vote showed the New Democracy party retaining its lead over Syriza, with the support of 26.1% of 1,012 Greeks surveyed. Syriza had 23.6%. That poll showed that Syriza gained 3.5 points in a week, compared with less than a percentage point for New Democracy. Sunday Greeks will vote once more after there was no consensus two months ago at the last election.
Escalating borrowing costs and shrinking output are opening divisions among EU leaders who face a series of hurdles in the coming days as bond investors question their ability to hold the euro area together. Spain and Italy appealed to European policy makers to step up their response to the financial crisis after a 100 billion-euro ($125 billion) lifeline for Spanish banks failed to calm markets. Spanish Prime Minister Mariano Rajoy said today he’ll “battle” central bankers refusing to buy debt from peripheral nations. Rajoy published a letter to European Union leaders calling for the European Central Bank to buy debt from the countries struggling to shore up their finances. Still about as much uncertainty today as has been the case for over two years; as long as it continues money of al denominations will continue to seek safety rather than assume risk.
Mortgage applications increased 18.0% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) the week ending June 8, 2012. The week’s results included an adjustment for the Memorial Day holiday. The Refinance Index increased over 19% from the previous week to the highest index level since April 2009. The seasonally adjusted Purchase Index increased around 13% from one week earlier. The refinance share of mortgage activity increased to 79% of total applications from 78% the previous week. The adjustable-rate mortgage (ARM) share of activity remains around 5 percent of total applications from the previous week. The average loan size of all loans for home purchase in the US was $243,733 in May 2012, up from $238,135 in April 2012. The average loan size for a refinance was $226,576, up from $219,664 in April. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) increased to 3.88% from 3.87%, with points decreasing to 0.43 from 0.46 (including the origination fee) for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,500) decreased to 4.12% from 4.13%, with points increasing to 0.41 from 0.35 (including the origination fee) for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA increased to 3.71% from 3.70%, with points decreasing to 0.59 from 0.60 (including the origination fee) for 80% loans. The average contract interest rate for 15-year fixed-rate mortgages increased to 3.23% from 3.20%, with points increasing to 0.48 from 0.46 (including the origination fee) for 80% loans.
At 9:30 this morning the DJIA opened -38, NASDAQ -12. The 10 yr at 9:30 +5/32 at 1.65% -1 bp and 30 yr mortgage price +3/32 (.09 bp) frm yesterday’s close.
At 10:00 April business inventories expected +0.2% increased 0.4%. Sales up 0.2%; the inventory to sales ratio 1.26 months. March sales were revised frm +0.6% to +0.2%.
At 1:00 Treasury will auction $21B of 10 yr notes, yesterday’s 3 yr note auction was OK but not real solid. The demand for today’s 10 yr will be closely watched as an indication on whether investors are pulling back from the safety moves over Europe.
Technically, the 10 yr note remains in bullish shape; as long as it doesn’t climb over 1.70% the outlook will remain positive. A close over 1.70% on the 10 will likely temper the bullish view, however to change the longer term view the 10 would have to close over 1.76%. MBS prices also still technically bullish; the July 30 yr FNMA coupon must hold above 104.23 bp, presently 104.78 bp. At 10:00 this morning the 10 yr note was at 1.63%, a close under 1.60% would break the uptrend that has increased the yield for the last 8 sessions.
Tuesday, June 12, 2012
Mortgage Rates
Yesterday the stock market closed weaker, down 143 on the DJIA, the bond and mortgage markets rallied with mortgage prices gaining .37 bp and the 10 yr yield -6 bp to 1.58%. This morning the stock indexes started stronger, and as usual the bond and mortgage markets started weaker. If one market rallies the other declines; a pattern that is very predictable these days. The stock market was boosted by comments from Chicago Fed President Evans this morning.
At 8:30 May import and export prices; import prices fell 1.0% as expected and April prices were revised from -0.5% to no change. Export prices were expected +0.1% but declined 0.4%. Neither report had any influence on the markets. In pre-market opening the stock indexes traded better with the DJIA futures up 60 points at 8:45. At 9:30 the DJIA opened +30, NASDAQ +10; the 10 yr note -12/32 at 1.63% +5 bp and 30 yr MBS price -3/32 (.09 bp).
Chicago Fed President Evans out today advocating more Fed easing to increase jobs. Evans isn’t a voter on the FOMC and he has been a strong supporter for the Fed to do more. “I’ve been in favor of pretty much any accommodative policy I’ve heard about,” Evans said in an interview on Bloomberg Television today. “Extending the Twist would be useful,” he said, referring to a plan expiring this month that lengthens the average duration of bonds in the Fed’s portfolio. “More asset purchases would be useful. More mortgage-backed securities purchases would be good.” “I would prefer that we worked harder to clarify our forward guidance,” Evans said in the interview recorded yesterday in Chicago, reiterating his call for the central bank to commit to low interest rates until the unemployment rate falls below 7% or inflation breaches 3%. Evans’s remarks contrasted with the views of some officials, including Atlanta Fed President Dennis Lockhart, who said yesterday he doesn’t see a need for more accommodation now partly because Treasury yields are so low. The differences of opinions and views within the Fed are not unusual but with the Fed intent on more clarity we actually hear the differences that were somewhat suppressed in the past.
Next week (June 19th and 20th) the FOMC meeting takes place. Last week in his testimony to the Joint Economic Committee of Congress Bernanke was arguably less dovish than most expected but he was able to stem any major sell off in equities by noting that the Fed stood 'ready to act' if conditions worsened. His past credentials have earned him the nickname 'Helicopter Ben' and thus allow him the ability to provide verbal intervention. But, his rather vague answers regarding the tools that would be used to stimulate the economy were viewed by markets as slightly hawkish for the Chairman. Bernanke is continuing his plea that Congress help out with fiscal measures but this Congress can hardly agree on the time of day let alone tackle serious fundamentals and spur job growth; meanwhile the President is blaming Congress for the weak state of the economy saying he has sent Congress bills that never get passed----a Pontius Pilate thing.
A new survey out frm BofA Merrill Lynch; 34% of investors expect the Fed to ease again; 44% of investors believe Greece will vote to stay in the EU when citizens vote this Sunday while 19% say Greece will exit. The majority is expecting the Fed to announce it will continue Operation Twist whereby the Fed is extending the maturity of its bond portfolio by selling short-dated notes while buying at the long end ( 7s, 10s and 30s).
Yesterday Spain got 100B euros ($125B) to shore up its declining banking sector; this morning Spain’s interest rates are increasing as global markets are not impressed with the infusion and likely there will need to be more. 100B euros is seen as being just a down payment to save the banks; then Italy will come to call on the EU to do the same for its banks. In our opinion unless the IMF becomes involved with money the EU can’t get out of this mess, there just isn’t any desire on Germany’s part to take on the debt burdens of other EU crumbling countries.
Treasury will begin this week’s auctions this afternoon with $32B of 3 yr notes, the auctions are expected to meet with decent demand. We do not expect much movement in the bond, mortgage and stock markets this week ahead of what will occur next week. The FOMC meeting, the G-20 meeting and the Greek vote next Sunday. This week the bond market will take its lead from the stock index trading; not the bond market leading, it’s the stock market that will set the tone on reactions to news and comments from Fed officials.
Yesterday the stock market closed weaker, down 143 on the DJIA, the bond and mortgage markets rallied with mortgage prices gaining .37 bp and the 10 yr yield -6 bp to 1.58%. This morning the stock indexes started stronger, and as usual the bond and mortgage markets started weaker. If one market rallies the other declines; a pattern that is very predictable these days. The stock market was boosted by comments from Chicago Fed President Evans this morning.
At 8:30 May import and export prices; import prices fell 1.0% as expected and April prices were revised from -0.5% to no change. Export prices were expected +0.1% but declined 0.4%. Neither report had any influence on the markets. In pre-market opening the stock indexes traded better with the DJIA futures up 60 points at 8:45. At 9:30 the DJIA opened +30, NASDAQ +10; the 10 yr note -12/32 at 1.63% +5 bp and 30 yr MBS price -3/32 (.09 bp).
Chicago Fed President Evans out today advocating more Fed easing to increase jobs. Evans isn’t a voter on the FOMC and he has been a strong supporter for the Fed to do more. “I’ve been in favor of pretty much any accommodative policy I’ve heard about,” Evans said in an interview on Bloomberg Television today. “Extending the Twist would be useful,” he said, referring to a plan expiring this month that lengthens the average duration of bonds in the Fed’s portfolio. “More asset purchases would be useful. More mortgage-backed securities purchases would be good.” “I would prefer that we worked harder to clarify our forward guidance,” Evans said in the interview recorded yesterday in Chicago, reiterating his call for the central bank to commit to low interest rates until the unemployment rate falls below 7% or inflation breaches 3%. Evans’s remarks contrasted with the views of some officials, including Atlanta Fed President Dennis Lockhart, who said yesterday he doesn’t see a need for more accommodation now partly because Treasury yields are so low. The differences of opinions and views within the Fed are not unusual but with the Fed intent on more clarity we actually hear the differences that were somewhat suppressed in the past.
Next week (June 19th and 20th) the FOMC meeting takes place. Last week in his testimony to the Joint Economic Committee of Congress Bernanke was arguably less dovish than most expected but he was able to stem any major sell off in equities by noting that the Fed stood 'ready to act' if conditions worsened. His past credentials have earned him the nickname 'Helicopter Ben' and thus allow him the ability to provide verbal intervention. But, his rather vague answers regarding the tools that would be used to stimulate the economy were viewed by markets as slightly hawkish for the Chairman. Bernanke is continuing his plea that Congress help out with fiscal measures but this Congress can hardly agree on the time of day let alone tackle serious fundamentals and spur job growth; meanwhile the President is blaming Congress for the weak state of the economy saying he has sent Congress bills that never get passed----a Pontius Pilate thing.
A new survey out frm BofA Merrill Lynch; 34% of investors expect the Fed to ease again; 44% of investors believe Greece will vote to stay in the EU when citizens vote this Sunday while 19% say Greece will exit. The majority is expecting the Fed to announce it will continue Operation Twist whereby the Fed is extending the maturity of its bond portfolio by selling short-dated notes while buying at the long end ( 7s, 10s and 30s).
Yesterday Spain got 100B euros ($125B) to shore up its declining banking sector; this morning Spain’s interest rates are increasing as global markets are not impressed with the infusion and likely there will need to be more. 100B euros is seen as being just a down payment to save the banks; then Italy will come to call on the EU to do the same for its banks. In our opinion unless the IMF becomes involved with money the EU can’t get out of this mess, there just isn’t any desire on Germany’s part to take on the debt burdens of other EU crumbling countries.
Treasury will begin this week’s auctions this afternoon with $32B of 3 yr notes, the auctions are expected to meet with decent demand. We do not expect much movement in the bond, mortgage and stock markets this week ahead of what will occur next week. The FOMC meeting, the G-20 meeting and the Greek vote next Sunday. This week the bond market will take its lead from the stock index trading; not the bond market leading, it’s the stock market that will set the tone on reactions to news and comments from Fed officials.
Monday, June 11, 2012
Friday, June 8, 2012
Mortgage Rates
The stock market weaker this morning, the bond market strong. Yesterday the 10 yr note yield climbed to the support area at 1.70% (1.69%) and held; mortgage markets were very strong yesterday outpacing the 10 yr note in price improvement. This morning the 10 yr note started up 23/32 at 1.56% -8 bp and mortgage prices at 8:30 up 8/32 (.25 bp) frm yesterday’s close. In a running timeline; at 9:00 the 10 yr 1.57% -7bp, mortgage prices on 30s +8/32 (.25 bp). At 9:30 the DJIA opened -45, NASDAQ -12; the 10 yr note at 1.57% -7 bp and 30 yr MBS price +6/32 (.18 bp) frm yesterday’s strong close.
It isn’t much of a secret that the global economy is slowing rapidly due primarily to the Europe debt crisis; China cut rates yesterday for the first time since 2008 to spur growth, on June 5th Australia cut its base rate but the ECB still unable to act as it is impotent in dealing with Europe’s debt mess, didn’t lower rates but said the door is open. Here in the US yesterday Bernanke testified in Congress and said the Fed policy makers will discuss later this month whether to do more to spur growth, though he said the steps they could take may have “diminishing returns.” The FOMC meeting is on June 19th and 20th with increasing numbers believing the Fed will come up with some easing plan----but to what avail? The Fed is out of bullets, even Bernanke is sending that message with is “diminishing return” comment.
JPMorgan Chase economists say the global economy will grow 1.7% this quarter and 2% in Q3, after expanding at an annual pace of 2.5% in the final quarter of 2011. Lower interest rates that may occur if the Fed does more easing will have minimal impact on the economy and growth; rates are not the issue now, it is about fear and uncertainty that Europe may not solve its debt problems without help from non-Europe countries, so far there is no appetite at the IMF to help the fumbling leaders in the EU and ECB. Germany holds the keys in Europe and isn’t likely to budge on its conviction that austerity cuts in the debt ridden countries of Spain, Greece, Portugal, Ireland and next up Italy. Checkmate! Today a European Central Bank Governing Council member said that while the ECB still has tools to help Europe’s economy withstand the crisis it won’t act in isolation from other European institutions. Over the weekend Euro finance chiefs plan weekend talks on a potential aid request frm Spain to shore up the nation’s lenders.
Presently the idea the Fed will likely ease again is seen as an extension of Operation Twist that is set to end at the end of the month. The Fed selling short dated maturities and simultaneously buying long dated maturities in an effort to keep long rates low. Is it needed to keep rates low? Right now no. With global money flowing into US treasures US 10 yr and 30 yr maturities will continue to stay low, however the Fed is the only game in town; Congress and the Administration are not functioning, unable to add fiscal help.
For at least the next two weeks interest rate and stock markets will likely trade in their present levels; not expecting new lows in rates, nor much increase. Starting on June 17th through June 20th, four days that will likely set the tone for financial markets through the rest of the summer. On the 17th Greece will vote on what is in a way a referendum on whether it stays or leaves the Union; right now polls indicate Greece will vote to stay. On the 18th there is a G-20 meeting in Mexico that will focus on the global economic decline and possibly a unified global plan to alleviate the debt crisis in Europe that is rapidly breaking the backs of most banks in the region. A few reports floating now that to take Europe away from the cliff it stands on, it will require coordinated global assistance. On the 19th and 20th the FOMC meeting with its policy statement on the 20th and Bernanke’s press conference.
No major data points today; at 8:30 the April US trade deficit was reported at -$50.1B about what was expected; March deficit was revised slightly higher to -$52.6B from -$51.8B. At 10:00 April wholesale inventories were thought to be up 0.5%, as reported inventories increased 0.6%, sales were up 1.1%, there is a 1.17 month supply based on sales.
As long as the 10 yr note can trade under 1.70% the near outlook for rates remains positive; that said though, as noted above, we are not expecting new lows in rates over the next couple of weeks. Mortgage prices continue to hold positive outlook; to change that the 30 yr FNMA 3.0 coupon would have to close below 104-3/32 (104.09 bp), presently 104-30/32 (104.93 bp) on the July coupon. We expect choppy two way trading over the next two weeks with little overall change in rates.
The stock market weaker this morning, the bond market strong. Yesterday the 10 yr note yield climbed to the support area at 1.70% (1.69%) and held; mortgage markets were very strong yesterday outpacing the 10 yr note in price improvement. This morning the 10 yr note started up 23/32 at 1.56% -8 bp and mortgage prices at 8:30 up 8/32 (.25 bp) frm yesterday’s close. In a running timeline; at 9:00 the 10 yr 1.57% -7bp, mortgage prices on 30s +8/32 (.25 bp). At 9:30 the DJIA opened -45, NASDAQ -12; the 10 yr note at 1.57% -7 bp and 30 yr MBS price +6/32 (.18 bp) frm yesterday’s strong close.
It isn’t much of a secret that the global economy is slowing rapidly due primarily to the Europe debt crisis; China cut rates yesterday for the first time since 2008 to spur growth, on June 5th Australia cut its base rate but the ECB still unable to act as it is impotent in dealing with Europe’s debt mess, didn’t lower rates but said the door is open. Here in the US yesterday Bernanke testified in Congress and said the Fed policy makers will discuss later this month whether to do more to spur growth, though he said the steps they could take may have “diminishing returns.” The FOMC meeting is on June 19th and 20th with increasing numbers believing the Fed will come up with some easing plan----but to what avail? The Fed is out of bullets, even Bernanke is sending that message with is “diminishing return” comment.
JPMorgan Chase economists say the global economy will grow 1.7% this quarter and 2% in Q3, after expanding at an annual pace of 2.5% in the final quarter of 2011. Lower interest rates that may occur if the Fed does more easing will have minimal impact on the economy and growth; rates are not the issue now, it is about fear and uncertainty that Europe may not solve its debt problems without help from non-Europe countries, so far there is no appetite at the IMF to help the fumbling leaders in the EU and ECB. Germany holds the keys in Europe and isn’t likely to budge on its conviction that austerity cuts in the debt ridden countries of Spain, Greece, Portugal, Ireland and next up Italy. Checkmate! Today a European Central Bank Governing Council member said that while the ECB still has tools to help Europe’s economy withstand the crisis it won’t act in isolation from other European institutions. Over the weekend Euro finance chiefs plan weekend talks on a potential aid request frm Spain to shore up the nation’s lenders.
Presently the idea the Fed will likely ease again is seen as an extension of Operation Twist that is set to end at the end of the month. The Fed selling short dated maturities and simultaneously buying long dated maturities in an effort to keep long rates low. Is it needed to keep rates low? Right now no. With global money flowing into US treasures US 10 yr and 30 yr maturities will continue to stay low, however the Fed is the only game in town; Congress and the Administration are not functioning, unable to add fiscal help.
For at least the next two weeks interest rate and stock markets will likely trade in their present levels; not expecting new lows in rates, nor much increase. Starting on June 17th through June 20th, four days that will likely set the tone for financial markets through the rest of the summer. On the 17th Greece will vote on what is in a way a referendum on whether it stays or leaves the Union; right now polls indicate Greece will vote to stay. On the 18th there is a G-20 meeting in Mexico that will focus on the global economic decline and possibly a unified global plan to alleviate the debt crisis in Europe that is rapidly breaking the backs of most banks in the region. A few reports floating now that to take Europe away from the cliff it stands on, it will require coordinated global assistance. On the 19th and 20th the FOMC meeting with its policy statement on the 20th and Bernanke’s press conference.
No major data points today; at 8:30 the April US trade deficit was reported at -$50.1B about what was expected; March deficit was revised slightly higher to -$52.6B from -$51.8B. At 10:00 April wholesale inventories were thought to be up 0.5%, as reported inventories increased 0.6%, sales were up 1.1%, there is a 1.17 month supply based on sales.
As long as the 10 yr note can trade under 1.70% the near outlook for rates remains positive; that said though, as noted above, we are not expecting new lows in rates over the next couple of weeks. Mortgage prices continue to hold positive outlook; to change that the 30 yr FNMA 3.0 coupon would have to close below 104-3/32 (104.09 bp), presently 104-30/32 (104.93 bp) on the July coupon. We expect choppy two way trading over the next two weeks with little overall change in rates.
Thursday, June 7, 2012
Mortgage Rates
Weekly jobless claims this morning were better than expected, at least on the headline; claims fell 12K to 377K against a decline of 4K expected, but last week’s claims were revised higher. Claims last week were reported at 383K, today revised to 389K; continuing claims increased from 3.259 mil to 3.293 mil, the 4 wk average up 4K. Prior to the 8:30 data the 10 yr note traded -2/32 and mortgage prices were unchanged, the DJIA futures were up 64; the initial reaction sent the 10 yr up 5/32 and mortgage prices on 30 yr fixed up 4/32 (.12 bp).
In an unexpected move, China cut its interest rates today, the first cut since 2008. Concerns spreading that Europe’s inability to effectively deal with its debt mess is dragging down the entire global economy was the reason for the cut. The one-year deposit rate will drop to 3.25 percent from 3.5 percent effective tomorrow, the People’s Bank of China said on its website today. The one-year lending rate will fall to 6.31% from 6.56%. Banks can offer a 20% discount to the benchmark lending rate, the Peoples Bank of China said, widening from 10%. Today’s move signals policy makers are concerned that the cost of borrowing is crimping companies’ spending and holding back expansion in the world’s second-biggest economy. The State Council warned May 23 that downside risks to growth are rising and three bank officials said the nation’s biggest banks may fall short of loan targets for the first time in at least seven years as demand for credit wanes.
The Bank of England left its asset-purchase program on hold as the threat from above-target inflation overrode policy makers’ concern that the euro area’s debt crisis has weakened economic growth in the U.K.
At 10:00 Ben Bernanke is beginning his testimony at the Joint Economic Committee in Congress. While we still hold the Fed won’t do another easing move, the markets are increasing the bets the Fed will do another easing. China’s easing move today is adding to that outlook. We cannot rationalize the reason for easing because there is no evidence that lowering interest rates (assuming an easing would actually accomplish that) will have any impact on the economy. Nevertheless we have to go with the flow and right now there is an increasing belief the fed will announce another easing when the FOMC meets on June19 and 20. Yesterday two Fed officials commented that the Fed might consider some sort of ease, possibly extending Operation Twist that is scheduled to expire at the end of the month. The Twist, the Fed sells short-dated maturities while simultaneously buying long dated maturities like 5, 10 and 30 yr terms. Atlanta Fed Pres. Lockhart said yesterday the Fed could move, then yesterday afternoon Federal Reserve Vice Chairman Janet Yellen said that stalled improvement in the labor market and weakening financial conditions may lead the central bank to boost its record monetary easing.
That China in essence eased today is increasing the idea that central bankers are about to ease further to fend off another global recession as Europe is sinking all economies. Not much new from Europe this morning; Spain was able to sell debt at its auction today, lessening the impact of comments from an official yesterday saying Spain has been cut out of the debt markets and asked for assistance from the ECB. The clock is ticking louder for Europe to get some cohesive plan on place soon; unless there is a plan acceptable to all within the next three or four months the outlook for the EU isn’t good. Greece will vote on the 17th while the G-20 meeting is scheduled to begin on 18th.
At 9:30 the DJIA opened +86, NASDAQ +28; the 10 yr after trading slightly better early down 5/32 at 1.68% +2 bp and 30 yr MBSs -4/32 (.12 bp) after being up 4/32 at 9:00 am.
Bernanke’s prepared opening remarks and answers to questions at his testimony will set the tone the rest of the day. At 3:00 April consumer credit will be reported, credit is expected to have expanded by $12.7B.
Weekly jobless claims this morning were better than expected, at least on the headline; claims fell 12K to 377K against a decline of 4K expected, but last week’s claims were revised higher. Claims last week were reported at 383K, today revised to 389K; continuing claims increased from 3.259 mil to 3.293 mil, the 4 wk average up 4K. Prior to the 8:30 data the 10 yr note traded -2/32 and mortgage prices were unchanged, the DJIA futures were up 64; the initial reaction sent the 10 yr up 5/32 and mortgage prices on 30 yr fixed up 4/32 (.12 bp).
In an unexpected move, China cut its interest rates today, the first cut since 2008. Concerns spreading that Europe’s inability to effectively deal with its debt mess is dragging down the entire global economy was the reason for the cut. The one-year deposit rate will drop to 3.25 percent from 3.5 percent effective tomorrow, the People’s Bank of China said on its website today. The one-year lending rate will fall to 6.31% from 6.56%. Banks can offer a 20% discount to the benchmark lending rate, the Peoples Bank of China said, widening from 10%. Today’s move signals policy makers are concerned that the cost of borrowing is crimping companies’ spending and holding back expansion in the world’s second-biggest economy. The State Council warned May 23 that downside risks to growth are rising and three bank officials said the nation’s biggest banks may fall short of loan targets for the first time in at least seven years as demand for credit wanes.
The Bank of England left its asset-purchase program on hold as the threat from above-target inflation overrode policy makers’ concern that the euro area’s debt crisis has weakened economic growth in the U.K.
At 10:00 Ben Bernanke is beginning his testimony at the Joint Economic Committee in Congress. While we still hold the Fed won’t do another easing move, the markets are increasing the bets the Fed will do another easing. China’s easing move today is adding to that outlook. We cannot rationalize the reason for easing because there is no evidence that lowering interest rates (assuming an easing would actually accomplish that) will have any impact on the economy. Nevertheless we have to go with the flow and right now there is an increasing belief the fed will announce another easing when the FOMC meets on June19 and 20. Yesterday two Fed officials commented that the Fed might consider some sort of ease, possibly extending Operation Twist that is scheduled to expire at the end of the month. The Twist, the Fed sells short-dated maturities while simultaneously buying long dated maturities like 5, 10 and 30 yr terms. Atlanta Fed Pres. Lockhart said yesterday the Fed could move, then yesterday afternoon Federal Reserve Vice Chairman Janet Yellen said that stalled improvement in the labor market and weakening financial conditions may lead the central bank to boost its record monetary easing.
That China in essence eased today is increasing the idea that central bankers are about to ease further to fend off another global recession as Europe is sinking all economies. Not much new from Europe this morning; Spain was able to sell debt at its auction today, lessening the impact of comments from an official yesterday saying Spain has been cut out of the debt markets and asked for assistance from the ECB. The clock is ticking louder for Europe to get some cohesive plan on place soon; unless there is a plan acceptable to all within the next three or four months the outlook for the EU isn’t good. Greece will vote on the 17th while the G-20 meeting is scheduled to begin on 18th.
At 9:30 the DJIA opened +86, NASDAQ +28; the 10 yr after trading slightly better early down 5/32 at 1.68% +2 bp and 30 yr MBSs -4/32 (.12 bp) after being up 4/32 at 9:00 am.
Bernanke’s prepared opening remarks and answers to questions at his testimony will set the tone the rest of the day. At 3:00 April consumer credit will be reported, credit is expected to have expanded by $12.7B.
Wednesday, June 6, 2012
Mortgage Rates
Treasuries and mortgages started weaker this morning but managed to crawl back to unchanged by 8:45. Early this morning the DJIA futures traded up 114 points, by 8:45 up 64 points. At 8:30 revisions to Q1 productivity and unit labor costs; productivity was revised to -0.9% frm -0.5% reported on the advance report last month, consensus was for -0.7%, unit labor costs were revised from +2.0% to +1.3%, consensus was for +2.2%. The bond and mortgage markets continued to improve as stock indexes edged back off the early highs; by 9:00 the 10 yr note +4/32 and MBS prices +4/32 (.12 bp) frm yesterday’s closes. By 9:30 the DJIA opened +84, NASDAQ +23; the 10 yr note lost ground, -5/32 at 1.59% +2 bp and MBS 30 yr price -2/32 (.06 bp); some volatility already this morning.
ECB’s Draghi said the economic outlook in the euro area faces “increased downside risks.” The ECB left interest rates unchanged at its meeting today. With European governments struggling to fix a crisis that’s hampering Spain and could force Greece out of the euro, economists say the ECB may soon be forced to lower rates and introduce more liquidity support for banks. “We continue to expect the euro-area economy to recover gradually,” Draghi said at his press conference. Draghi said officials will extend their offerings of unlimited cash until the start of 2013 for periods up to three months as they try to head off risks stemming from the euro region debt crisis. “We have decided to continue our main refinancing at fixed rate, full allotment for as long as necessary” and at least until January. German stocks pared their advance after Draghi’ s comments, also weakening the US indexes prior to the 9:30 open.
The weekly MBA mortgage applications out this morning; the overall index up 1.3%. The purchase index fell 1.8% in the June 1 week and is back at its lowest level since mid-April. Low rates are a plus for purchase demand and are definitely stimulating refinancing activity. The refinance index rose 2.0% in the week and is at its highest level since February. Refinancing made up more than 3/4 of the week's mortgage activity. The week's average 30-year fixed rate is a record low of 3.87 percent (conforming balances under $417,500).
At 2:00 this afternoon the Fed’s beige Book will be released. Always gets attention, the Book is used at the FOMC meeting in two weeks. Tomorrow Fed chief Bernanke will testify at the Joint Economic Committee in Congress. Markets will look ahead to his testimony and likely will not see a lot of change today in the bond market.
Both stocks and bonds are continuing their corrections to over extended levels; stock indexes were very oversold while the bond and mortgage markets equally overbought. There isn’t any major changes in the overall sentiment, just consolidating and waiting for news out of Europe. Greece elections on the 17th and Spain’s increasing bank problems. No progress in Europe, a lot of meetings but no consensus on what to do to keep the EU together and come to any plan to deal with growing debt issues. The stock market remains bearish and the bond and mortgage markets bullish.
After a little two way trade in the bond market early this morning, the 10 yr and mortgages are weakening as stock indexes continue to rally. In the U.S., Federal Reserve Bank of Atlanta President Dennis Lockhart said extending Operation Twist, the program to lengthen maturities of debt on the central bank’s balance sheet, is an “option on the table.” “There is capacity to do more, so it is an option on the table,” he remarked.
Treasuries and mortgages started weaker this morning but managed to crawl back to unchanged by 8:45. Early this morning the DJIA futures traded up 114 points, by 8:45 up 64 points. At 8:30 revisions to Q1 productivity and unit labor costs; productivity was revised to -0.9% frm -0.5% reported on the advance report last month, consensus was for -0.7%, unit labor costs were revised from +2.0% to +1.3%, consensus was for +2.2%. The bond and mortgage markets continued to improve as stock indexes edged back off the early highs; by 9:00 the 10 yr note +4/32 and MBS prices +4/32 (.12 bp) frm yesterday’s closes. By 9:30 the DJIA opened +84, NASDAQ +23; the 10 yr note lost ground, -5/32 at 1.59% +2 bp and MBS 30 yr price -2/32 (.06 bp); some volatility already this morning.
ECB’s Draghi said the economic outlook in the euro area faces “increased downside risks.” The ECB left interest rates unchanged at its meeting today. With European governments struggling to fix a crisis that’s hampering Spain and could force Greece out of the euro, economists say the ECB may soon be forced to lower rates and introduce more liquidity support for banks. “We continue to expect the euro-area economy to recover gradually,” Draghi said at his press conference. Draghi said officials will extend their offerings of unlimited cash until the start of 2013 for periods up to three months as they try to head off risks stemming from the euro region debt crisis. “We have decided to continue our main refinancing at fixed rate, full allotment for as long as necessary” and at least until January. German stocks pared their advance after Draghi’ s comments, also weakening the US indexes prior to the 9:30 open.
The weekly MBA mortgage applications out this morning; the overall index up 1.3%. The purchase index fell 1.8% in the June 1 week and is back at its lowest level since mid-April. Low rates are a plus for purchase demand and are definitely stimulating refinancing activity. The refinance index rose 2.0% in the week and is at its highest level since February. Refinancing made up more than 3/4 of the week's mortgage activity. The week's average 30-year fixed rate is a record low of 3.87 percent (conforming balances under $417,500).
At 2:00 this afternoon the Fed’s beige Book will be released. Always gets attention, the Book is used at the FOMC meeting in two weeks. Tomorrow Fed chief Bernanke will testify at the Joint Economic Committee in Congress. Markets will look ahead to his testimony and likely will not see a lot of change today in the bond market.
Both stocks and bonds are continuing their corrections to over extended levels; stock indexes were very oversold while the bond and mortgage markets equally overbought. There isn’t any major changes in the overall sentiment, just consolidating and waiting for news out of Europe. Greece elections on the 17th and Spain’s increasing bank problems. No progress in Europe, a lot of meetings but no consensus on what to do to keep the EU together and come to any plan to deal with growing debt issues. The stock market remains bearish and the bond and mortgage markets bullish.
After a little two way trade in the bond market early this morning, the 10 yr and mortgages are weakening as stock indexes continue to rally. In the U.S., Federal Reserve Bank of Atlanta President Dennis Lockhart said extending Operation Twist, the program to lengthen maturities of debt on the central bank’s balance sheet, is an “option on the table.” “There is capacity to do more, so it is an option on the table,” he remarked.
Monday, June 4, 2012
Mortgage Rates
Early activity this morning had the bond and mortgage markets trading lower after the explosive rally on Friday on the weak May employment report. The 10 yr note and 30 yr bond are falling in rate on increasing global moves to safety. Obviously Europe is leading the parade to safety as there is little progress in dealing with its debt and rapidly declining economy; China is slowing quickly and India is now showing cracks in its economy. In the US we are doing better for the moment but also being pulled down by the global softening. Investors of all sizes are simply parking money in sovereign debt, in the US, Germany and other AAA rated sovereign debt (the US rating is AA+). Investors no longer looking to a return on investment, just return on the principal.
As euro-area unemployment reached its highest level on record, manufacturing output contracted for a 10th straight month in May and the currency plunged close to a two-year low against the U.S. dollar, leaders continued to wrangle over the details of support for the currency bloc. There is an increasing cry in Europe from the debt ridden countries to institute euro bonds. With markets bracing for further deterioration in Spain’s finance sector and a possible Greek departure from the 17-member euro area, there are calls for a “banking union” in Europe involving a centralized system to re-capitalize lenders. Germany’s Merkel shut off another crisis-fighting avenue the same day as she toughened her opposition to euro-area debt sharing, saying that “under no circumstances” would she agree to euro bonds. Germany holds most of the cards, so far unwilling to play many of them fearing the inevitable, decline in Germany’s economy and its own debt if it has to back euro bonds.
Treasuries and mortgage markets are technically overbought while the US equity market is oversold. A bounce back is not unusual with short term oscillators and momentum indicators at extreme levels. Traders will be reluctant to step in now until markets can consolidate and test the underlying demand at current levels in financial markets. There is however no reason to expect interest rates will increase much given the underlying fundamentals.
The DJIA opened +15, NASDAQ +18; the 10 yr at 9:30 -20/32 at 1.53% +7 bp and 30 yr MBS prices -6/32 (.18 bp).
At 10:00 the data for the day, April factory orders expected +0.1%, took another dive to -0.6% and March orders were revised to -1.9% frm 1.5% The reaction turned stock indexes down from slight gains. The 10 yr was -20/32, it bounced up to -14/32.
There isn’t a lot of key economic measurements this week; weekly clams and the May ISM services sector lead the headlines. We expect a choppy bond and mortgage markets this week to ease the over-extended move we saw last week. Last Friday’s heavy buying in treasuries looked much like a capitulation from the bond bears after the 10 yr easily broke 1.50%. One media guru was out today conjecturing that the 10 yr could go to 1.00% before the rate markets turn around. We can’t get on board with that however. Although Europe at the moment looks impotent in dealing with the economy and debt problems, it isn’t unreasonable that in the next few months there will be a plan in place that will reduce risk off trades into bonds. If Europe can’t come up with a fix that makes sense in the next few months, the entire EU may come tumbling down in a heap. That isn’t an option so something will have to give In the present stalemates that have grid-locked all of the region.
Early activity this morning had the bond and mortgage markets trading lower after the explosive rally on Friday on the weak May employment report. The 10 yr note and 30 yr bond are falling in rate on increasing global moves to safety. Obviously Europe is leading the parade to safety as there is little progress in dealing with its debt and rapidly declining economy; China is slowing quickly and India is now showing cracks in its economy. In the US we are doing better for the moment but also being pulled down by the global softening. Investors of all sizes are simply parking money in sovereign debt, in the US, Germany and other AAA rated sovereign debt (the US rating is AA+). Investors no longer looking to a return on investment, just return on the principal.
As euro-area unemployment reached its highest level on record, manufacturing output contracted for a 10th straight month in May and the currency plunged close to a two-year low against the U.S. dollar, leaders continued to wrangle over the details of support for the currency bloc. There is an increasing cry in Europe from the debt ridden countries to institute euro bonds. With markets bracing for further deterioration in Spain’s finance sector and a possible Greek departure from the 17-member euro area, there are calls for a “banking union” in Europe involving a centralized system to re-capitalize lenders. Germany’s Merkel shut off another crisis-fighting avenue the same day as she toughened her opposition to euro-area debt sharing, saying that “under no circumstances” would she agree to euro bonds. Germany holds most of the cards, so far unwilling to play many of them fearing the inevitable, decline in Germany’s economy and its own debt if it has to back euro bonds.
Treasuries and mortgage markets are technically overbought while the US equity market is oversold. A bounce back is not unusual with short term oscillators and momentum indicators at extreme levels. Traders will be reluctant to step in now until markets can consolidate and test the underlying demand at current levels in financial markets. There is however no reason to expect interest rates will increase much given the underlying fundamentals.
The DJIA opened +15, NASDAQ +18; the 10 yr at 9:30 -20/32 at 1.53% +7 bp and 30 yr MBS prices -6/32 (.18 bp).
At 10:00 the data for the day, April factory orders expected +0.1%, took another dive to -0.6% and March orders were revised to -1.9% frm 1.5% The reaction turned stock indexes down from slight gains. The 10 yr was -20/32, it bounced up to -14/32.
There isn’t a lot of key economic measurements this week; weekly clams and the May ISM services sector lead the headlines. We expect a choppy bond and mortgage markets this week to ease the over-extended move we saw last week. Last Friday’s heavy buying in treasuries looked much like a capitulation from the bond bears after the 10 yr easily broke 1.50%. One media guru was out today conjecturing that the 10 yr could go to 1.00% before the rate markets turn around. We can’t get on board with that however. Although Europe at the moment looks impotent in dealing with the economy and debt problems, it isn’t unreasonable that in the next few months there will be a plan in place that will reduce risk off trades into bonds. If Europe can’t come up with a fix that makes sense in the next few months, the entire EU may come tumbling down in a heap. That isn’t an option so something will have to give In the present stalemates that have grid-locked all of the region.
Friday, June 1, 2012
Mortgage Rates
The May employment data has been a huge shock to the markets and the outlook for the economy. The unemployment rates increased to 8.2% frm 8.1% the past two months. Non-farm jobs were expected to be up about 150K, jobs increased just 69K and private jobs were thought to be up 168K, as reported up 82K. April non-farm jobs were revised down 38K frm the original report and Mach jobs revised lower by 11K frm originally reported. April non-farm private jobs originally reported +130K were also revised lower, to +87K -43K. Factory employment increased by 12,000, less than the survey forecast of a 15,000 increase. Employment at service-providers increased 84,000 in May. Construction companies cut 28,000 jobs, the most in two years, and retailers boosted payrolls by 2,300. Government payrolls declined by 13,000. Average hourly earnings increased 0.1%. Compared with May of last year, earnings climbed 1.7%, the smallest increase since December 2010. The average work week for all workers fell to 34.4 hours from 34.5 hours. The so-called underemployment rate -- which includes part-time workers who’d prefer a full-time position and people who want work but have given up looking -- increased to 14.8% from 14.5%. The report also showed an increase in long-term unemployed Americans. The number of people unemployed for 27 weeks or more rose as a percentage of all jobless, to 42.8% from 41.3%.
No matter how one looks at it, the employment data clearly shows the US is being dragged down by Europe and its complete inability to deal with its debt problems. The initial reaction to the report this morning sent the 10 yr note yield down to 1.44% -13 bp frm yesterday’s close and down 31 basis points since last Friday’s close. Mortgage prices on the reaction increased 11/32 but by 9:00 MBS prices had fallen back to +6/32 (.16 bp). The DJIA futures on the reaction fell 200 points, by 9:00 though -166.
Also at 8:30, April personal income expected up 0.3% was reported up 0.2% while spending increased 0.3% as expected.
Wanting lower interest rates is what most want to see, but as with eating candy, too much makes us sick. The rapid drop in rates this week is setting off a run to renege and recast those locks of a week ago. Those that are re-financing are likely to increase their demand for lower rates and walk away. Lenders are facing the problem of what will actually close and at what rate. How low can rates go? We don’t know for sure, but technically the bond market is very overbought for the moment, panic is increasing with investors and Europe continues to move closer to the preverbal cliff. The best scenario now would be for interest rates to stabilize and move up a little; not cheering for higher rates, but markets are unstable here and in need of consolidation. We expect there will be some retracement soon as the bond market is currently stretched to its limit; not saying in any way that rates have bottomed, but expect an increase in price volatility next week. Longer term, the present bullish trend could withstand a backup to 1.60% on the 10 and not change the bullish outlook. That said, at this point it is unlikely that will occur, but there will be some rebound coming very soon.
The DJIA opened -116, NASDAQ -51; the 10 yr note yield climbed back to 1.50% frm 1.46% on the employment report, MBS prices +5/32 (.15 bp) and down from +11/32 (.34 bp) on the reaction to the employment report. As noted in the above paragraph we don’t look for more declines in rates over the next few days; mainly a technical observation but we have confidence in it and will stand by our short term forecast that rate markets will consolidate here for a while.
Continuing today’s data; at 10:00 the May ISM index expected at 54.0 fell to 53.5 and down from 54.8 in April. New orders component increased to 60.1 frm 58.2, employment at 56.9 frm 57.3 and prices pd at 47.5 frm 61.0. Another weak report but no immediate reaction with rates already rallying. April construction spending at +0.3%.
After the very weak data today the idea of another Fed QE has increased. I still cannot square why the Fed would need more QE with rates at these lows. What is the advantage of more Fed involvement? Will it force more employment, NO, will it force investors to invest in equities looking for profits, NO. Will it force investors to move money out of the US to sovereigns return higher rates, POSSIBLY.
The May employment data has been a huge shock to the markets and the outlook for the economy. The unemployment rates increased to 8.2% frm 8.1% the past two months. Non-farm jobs were expected to be up about 150K, jobs increased just 69K and private jobs were thought to be up 168K, as reported up 82K. April non-farm jobs were revised down 38K frm the original report and Mach jobs revised lower by 11K frm originally reported. April non-farm private jobs originally reported +130K were also revised lower, to +87K -43K. Factory employment increased by 12,000, less than the survey forecast of a 15,000 increase. Employment at service-providers increased 84,000 in May. Construction companies cut 28,000 jobs, the most in two years, and retailers boosted payrolls by 2,300. Government payrolls declined by 13,000. Average hourly earnings increased 0.1%. Compared with May of last year, earnings climbed 1.7%, the smallest increase since December 2010. The average work week for all workers fell to 34.4 hours from 34.5 hours. The so-called underemployment rate -- which includes part-time workers who’d prefer a full-time position and people who want work but have given up looking -- increased to 14.8% from 14.5%. The report also showed an increase in long-term unemployed Americans. The number of people unemployed for 27 weeks or more rose as a percentage of all jobless, to 42.8% from 41.3%.
No matter how one looks at it, the employment data clearly shows the US is being dragged down by Europe and its complete inability to deal with its debt problems. The initial reaction to the report this morning sent the 10 yr note yield down to 1.44% -13 bp frm yesterday’s close and down 31 basis points since last Friday’s close. Mortgage prices on the reaction increased 11/32 but by 9:00 MBS prices had fallen back to +6/32 (.16 bp). The DJIA futures on the reaction fell 200 points, by 9:00 though -166.
Also at 8:30, April personal income expected up 0.3% was reported up 0.2% while spending increased 0.3% as expected.
Wanting lower interest rates is what most want to see, but as with eating candy, too much makes us sick. The rapid drop in rates this week is setting off a run to renege and recast those locks of a week ago. Those that are re-financing are likely to increase their demand for lower rates and walk away. Lenders are facing the problem of what will actually close and at what rate. How low can rates go? We don’t know for sure, but technically the bond market is very overbought for the moment, panic is increasing with investors and Europe continues to move closer to the preverbal cliff. The best scenario now would be for interest rates to stabilize and move up a little; not cheering for higher rates, but markets are unstable here and in need of consolidation. We expect there will be some retracement soon as the bond market is currently stretched to its limit; not saying in any way that rates have bottomed, but expect an increase in price volatility next week. Longer term, the present bullish trend could withstand a backup to 1.60% on the 10 and not change the bullish outlook. That said, at this point it is unlikely that will occur, but there will be some rebound coming very soon.
The DJIA opened -116, NASDAQ -51; the 10 yr note yield climbed back to 1.50% frm 1.46% on the employment report, MBS prices +5/32 (.15 bp) and down from +11/32 (.34 bp) on the reaction to the employment report. As noted in the above paragraph we don’t look for more declines in rates over the next few days; mainly a technical observation but we have confidence in it and will stand by our short term forecast that rate markets will consolidate here for a while.
Continuing today’s data; at 10:00 the May ISM index expected at 54.0 fell to 53.5 and down from 54.8 in April. New orders component increased to 60.1 frm 58.2, employment at 56.9 frm 57.3 and prices pd at 47.5 frm 61.0. Another weak report but no immediate reaction with rates already rallying. April construction spending at +0.3%.
After the very weak data today the idea of another Fed QE has increased. I still cannot square why the Fed would need more QE with rates at these lows. What is the advantage of more Fed involvement? Will it force more employment, NO, will it force investors to invest in equities looking for profits, NO. Will it force investors to move money out of the US to sovereigns return higher rates, POSSIBLY.
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