Mortgage Rates



US interest rates better this morning with US stock markets opening lower on reports out of China show its economy is slowing more than thought. China’s GDP rose 8.1% in the first quarter from a year earlier following an 8.9% increase in the fourth quarter, the National Bureau of Statistics in Beijing said today; that was less than the 8.4% growth predicted. China’s economy slowing as exports decline to Europe and the US, and the latest data shows imports are also slowing.

Europe’s debt problems are back as we noted previously; average net borrowings by Spanish banks climbed to 227.6 billion euros last month from 152.4 billion euros in February, the Bank of Spain said. Lenders in the whole euro system took 361.7 billion euros, the data showed. Spanish government bonds headed for a second weekly decline, a sign the respite in the region’s debt crisis created by the ECB’s three-year loan program may be coming to an end. Seventeen of 22 economists surveyed this week predicted the ECB will be forced to resume its so-called Securities Markets Program to contain bond yields. In Italy protests by labor unions against the austerity plans being implemented. Prime Minister Monti’s pension plan was part of a $26 billion austerity package passed in January to fight the sovereign crisis by putting Italy’s debt, the second highest in Europe after Greece, on a downward trajectory from next year.

With slowing in global economic growth comes an increasing belief the US Fed will institute another QE soon. Europe’s debt crisis is adding support to lower interest rates. The recent swift decline in rates after the 10 yr spiked to 2.40% may be already discounting another easing action. This morning the stock indexes are lower after a two days of improvement, the 10 yr note hit 2.00% this morning.

At 8:30 March consumer price index was right on estimates; the overall CPI increased 0.3% frm Feb, yr/yr up 2.7%. The core rates (ex food and energy) up 0.2%, yr/yr +2.3%. There was no immediate reaction to the report.

At 9:30 the DJIA opened down 41 points, the 10 yr note at 2.01% -4 bp and mortgage prices up 6/32 (.18 bp).

The last data this week, at 9:55 the U.of Michigan/Reuters consumer sentiment index was expected unchanged at 76.2, it fell to 75.7, the current conditions index at 80.6 frm 86.0, expectations at 72.5 frm 69.8 and the 12 month outlook at 87 frm 79. The stock market worsened further and the bond market gained a little with the 10 yr at 2.00% and MBS prices .06 bp better than at 9:30.

Federal Reserve Chairman Ben Bernanke will speaking to the Russell Sage Foundation and The Century Foundation on "Rethinking Finance" at 1:00 this afternoon and will take questions from the audience. More than likely he will field questions on what the fed may be prepared to do, and questions on his outlook on the US economy and the Fed’s course of keeping the FF rate at zero to +0.25% for the next two and a half years.

Two readings on employment recently, the March employment report and yesterday’s weekly jobless claims, both added concern about the status of the economy. Tie that to the renewed fears of debt problems and economic decline in Europe and slower growth in China and we have a momentary perfect storm for lower interest rates. But how much lower will longer term rates fall is the ultimate question. The 10 yr note is just 10 basis points higher now than where it has encountered major resistance at 1.90%; although the rate did fall below 1.90% a few times but each time it couldn’t be sustained (only fifteen days since last September). The majority of trading on the 10 yr note since the beginning of last Sept has been between 2.10% and 1.90%.

This week had very little key economic data, only weekly jobless claims. Next week there are a number of key measurements; March retail sales, Apr Empire State manufacturing and the Apr Philly Fed business index, March housing starts and permits and March existing home sales March industrial production and factory usage--- a lot of data that pending the results may either encourage more QE talk or dampen it. The next FOMC meeting on Tuesday the 24th and Wednesday the 25th.

Putting it in perspective; this week the 10 yr note has been tied to a 7 bp range; mortgage prices so far this week have traded in an 8/32 (.25 bp) range (103.14 to 103.06). For all the angst and talk the rate markets were essentially flat this week , at least through 10:00 this morning.