Mortgage Rates



Early activity this morning had the bond and mortgage markets continuing their rebound from Tuesday’s selling. The 10 yr note this morning has regained all of its losses from the one day selling, mortgage prices at the end of the day Monday were 102.30/32 for April 30 yr FNMAs, this morning at 8:45 the price 102.27/32.


Weekly jobless claims this morning were about where they were expected, -6K to 357K, the decline based on last week’s claims revised from 359K to 363K. Continuing claims declined to 3.338 mil frm 3.354 mil the previous week. Claims are now the lowest since April 2008 and continuing claims the lowest since August 2008. Prior to data at 8:30 the stock index futures were weaker and treasury and mortgage markets were strong; after the data stock indexes, still lower but well off the lows and the bond and mortgage markets were holding but also off their best levels as volatility continues to exaggerate movement.


In the FOMC minutes Tuesday there was no mention about the possibility of another QE frm the Fed, traders dumped treasuries and other fixed income investments. The Fed’s comments that the US economy was improving gave some momentary credence that the Fed would not have to do another easing move; but what was over-looked was the comments that the Fed remained concerned that the employment sector still is weak and uneven. Since Tuesday’s selling two factors have taken the driver’s seat in the bond market. The stock market has come under attack and has declined, the DJIA -190 points on Tuesday and Wednesday. Europe is back in play as Spain’s bond market has seen yields increase implying investors are reconsidering the potential of another default crisis. European stocks fell for a third day, the euro weakened and Spanish bonds declined on concern that slowing growth will exacerbate the region’s debt crisis. The recent pattern for the US stock market is to follow Europe’s markets, as they fall the US stock market is following the down.


Although I still do not think the Fed will do another easing move; the markets are not giving up on the idea. We hold that the US economy will continue to improve---slowly---but enough that the Fed will not find it necessary to ease again. The foundation for not expecting another easing is based primarily on our more positive outlook for the economy. If however we are wrong then the Fed will not hesitate to ease again. It depends on one’s outlook whether the Fed will ease or not. I admit that the Fed has a point about the sluggish recovery and the uneven and shaky employment outlook, and every day the stock market slips the outlook for another easing increases. Europe’s stock markets falling, the US market selling off in what we believe is a long overdue correction after the huge increases in the last two months.


Just when Europe’s debt crisis has ebbed, it is back. Spain’s increase in their bond market rates is roiling markets again. Recent bond sales in Spain had been meeting with better than expected demand and at slightly lower rates than analysts were thinking. Now Spain is seeing rates increase as investors decline to buy at the levels seen a week ago; the debt crisis is once again being brought into question. The EU debt problems won’t go away, it will likely continue to surface and fade then resurface for a long time, each time it will impair equity markets and add support to the bond markets.


At 9:30 the DJIA opened down 48, NASDAQ -6, S&P -5. The 10 yr note +13/32 at 2.17% -6 bp and MBS 30 yr prices +6/32 (.18 bp).


There are no more scheduled data points today. Tomorrow the March employment report is generally expected to see non-farm jobs increase about 200K and private jobs up 240K with the unemployment rate unchanged at 8.3%. Yesterday ADP reported private jobs up 209K, recently ADP’s data has been close to what the BLS reports on the “official” re[ort. Tomorrow is Good Friday, most markets will be closed; the stock market will be closed but as I understand it stock index futures will trade until noon. The bond market will trade until noon.


As we noted Tuesday when markets went postal, the action would set up increased volatility. Today so far a prime example; at 8:00 this morning the 10 yr note rate fell to 2.13% and MBS prices were up 14/32 (.44 bp). By 9:30 the 10 yr at 2.17% and MBSs +6/32 (.18 bp). At 10:00 the 10 yr back to 2.20% and MBS prices +3/32 (.09 bp). The DJIA opened -48 at 9:30, at 10:00 -24. The remainder of the day for the interest rate markets will be following the stock indexes, a rally will add some pressure on rates while another strong sell-off will support better prices and some lower rates.