Mortgage Rates



Generally quiet early this morning with treasuries and mortgage markets flat and stock indexes mixed at 9:00. US financial markets will not see much change this morning ahead of the 2:00 FOMC policy statement and Bernanke’s press conference. The NASDAQ is the only index trading higher this morning, driven by the rally in Apple.

No changes or improvements over Europe’s debt mess. Greece is on the front burner now; on Monday there was widespread belief the Greece and its creditors would make a deal and avoid defaults. Yesterday the optimism waned as private investors (banks) refused to take the losses necessary to save the country. Today the ECB said it would not participate in any writedowns on the Greek bonds it holds, saying the central bank isn’t an investor, it bought the debt to aid Greece in an attempt to avoid default. Summing; nothing is being accomplished with Greece. International Monetary Fund Managing Director Christine Lagarde said today that European governments and other public holders of Greek debt may have to increase support if private creditors don’t go far enough. Investors and European finance ministers remain at odds over how much private investors should shoulder in the Greek bailout.

The US bond and equity markets have largely become desensitized about momentary events and comments out of Europe. There is a slowly increasing belief in US markets that eventually Europe will save itself and its currency; likely driven by the view that anything short of some acceptable plan would be a catastrophe to Europe and rest of the global economies. Safety moves into US treasuries have ebbed, at the moment there is little motivation to move into treasuries, yet so far there is not much reason the dump fixed rate treasuries. The 10 yr note yield has increased from 1.85% on 1/13 to 2.06% yesterday, mostly traders reducing exposure; MBSs also have increased in rate. Although rates have increased some as we noted they would, at the same time we do not expect interest rates to move much higher; our target for the bellwether 10 yr note is 2.15% and no higher, worse case for mortgage rates, another 10 basis points in rates on 30s.

Working against the bond market, less concern over Europe and improved US economic outlook. Most all key economic reports in the past three months have beaten estimates. On Friday Commerce will release the advance Q4 GDP, consensus is+3.1%, up frm +1.8% in Q3. While the fed will continue to keep short rates low as it has said repeatedly, the long end of the curve (10 yr) has seen its lows. There is an idea out there that the Fed may decide to increase its purchases on MBSs in an attempt to keep mortgage rates low, but if treasuries increase about all that can be expected is the yield spread between MBSs and treasuries will narrow. It is not likely that treasury rates would increase while mortgage rates fall.

At 10:00a few minutes ago; Dec pending home sales (contracts signed but not closed) was expected down 1.0%, sales fell 3.5% with about a third of sales are not going to the closing table; yr/yr pending sales up 5.6%. Nov FHFA housing price index expected -0.1%, jumped 1.0%; yr/yr -1.8%. There was no market reaction to the two housing reports.

US rate markets will likely stay quiet through the morning and early afternoon ahead of the FOMC statement and Bernanke’s press conference this afternoon. At 9:30 the DJIA opened -45, the 10 yr unch and mortgage prices also unchanged to slightly lower.