At the conclusion of yesterday's meeting the Fed indicated that the pace of economic contraction appeared to be slowing and consumer spending was showing signs of stabilizing. The Fed's rather positive tone lit up the phone lines for stock brokers - as investors the world over decided to begin migrating capital currently in the low-return low-risk world of Treasury obligations and agency eligible mortgage-backed securities back into the higher-risk higher-return universe of the equity markets.
The rally in equity markets has certainly proven to be resilient. With that said -- there are still significant doubts about the longevity of the current stock market rally. A major downward correction in the stock indexes would undoubtedly be a major support for the prospects of steady to lower mortgage interest rates. It hasn't happened - and nothing says it "has" to happen - but a solid near-term mortgage market friendly sell-off in the stock markets isn't completely out of the question just yet.
As if to lend a little macro-economic support to my assessment of the health of the equity markets the Commerce Department reported that consumer spending slumped 0.2% in March after posting a 0.4% gain in February. Personal incomes fell by 0.3% after declining by 0.2% in February. The personal consumption expenditure index component of this report, a fancy title for one of the Fed's favorite measures of inflation at the consumer level, was unchanged from month earlier levels - a clear indication mortgage investors' radar screens remain free of any threat from rising prices and/or wages.
In a separate report the Labor Department said employment expenses posted a gain of 0.3% during the first quarter - the smallest gain on record. The Labor Department went on to say that the number of workers filing for first-time jobless benefits declined by 14,000 last week. The four-week moving average of new jobless claims, a better gauge of underlying labor trends because it irons out week-to-week volatility, declined for the third week in a row. The initial claims data is not suggesting the end of the massive reduction in the labor force is over - but it is hinting that it may not get significantly worse from current levels.
Thursday, April 30, 2009
Wednesday, April 29, 2009
Wednesday, April 29, 2009
Uncle Sam will be looking to borrow $26 billion in the form of 7-year notes today. The Treasury auction will conclude at 1:00 p.m. ET. Not looking for anything dramatic - but we may see a temporary little "relief rally" in the mortgage market following the conclusion of this week's record setting borrowing spree by Uncle Sam.
There is some speculation in the mortgage market this morning that the Federal Open Market Committee might announce an expansion of its Treasury purchase program at the conclusion of their monetary policy meeting this afternoon at 2:15 p.m. ET. Such news would almost certainly nudge mortgage interest rates fractionally lower - but unfortunately such an outcome is probably little more than an exercise in wishful thinking.
Some mortgage investors may actually choose to nudge rates a touch higher if, as expected, for the first-time in more than a year the Fed indicates it sees some developing signs the worst of the recession may be over. The Fed may also choose to highlight the fact that they are still actively engaged in the purchase of more than $1 trillion in asset-backed securities, $300 billion in longer-term Treasury obligations and more than $1.2 trillion of mortgage-backed securities. As long as the Fed has this kind of financial firepower in their back pocket - interest rates might rise a bit - but they are certainly not going to jump sharply higher any time soon.
Mortgage investors' anxiety may be soothed further if the committee reinforces its assessment that inflation "will remain subdued in coming quarters" because of slack economic activity and a puny labor sector. All-in-all today's Fed meeting will likely go into the books as a non-event with respect to its impact on mortgage interest rates.
The Commerce Department announced earlier this morning that its preliminary estimate of first-quarter Gross Domestic Product showed economic activity shrank by 6.1%. That performance on its face was considerably weaker than most economists had anticipated. However, when analysts had a chance to drill down into the data more deeply - the number was not nearly as ugly as it first appeared. Most of the notably drop in the headline figure was attributable to the largest inventory drawdown since 1947. Believe it or not - analysts actually see the massive first-quarter inventory drawdown as a positive development for future economic growth. What initially looked like a bit of mortgage friendly data has actually morphed into a minor hindrance to the prospects of lower rates.
In a separate report the Mortgage Bankers of America announced home loan applications fell by 18.2% during the week ended April 24th - dragged lower by a big 21.9% drop in refinance applications and a far more modest 0.6% slide in applications for home purchases. During the period the average 30-year mortgage dropped 0.11% to 4.62% -- nearly matching the all-time low of 4.61% set during the week ended March 27.
There is some speculation in the mortgage market this morning that the Federal Open Market Committee might announce an expansion of its Treasury purchase program at the conclusion of their monetary policy meeting this afternoon at 2:15 p.m. ET. Such news would almost certainly nudge mortgage interest rates fractionally lower - but unfortunately such an outcome is probably little more than an exercise in wishful thinking.
Some mortgage investors may actually choose to nudge rates a touch higher if, as expected, for the first-time in more than a year the Fed indicates it sees some developing signs the worst of the recession may be over. The Fed may also choose to highlight the fact that they are still actively engaged in the purchase of more than $1 trillion in asset-backed securities, $300 billion in longer-term Treasury obligations and more than $1.2 trillion of mortgage-backed securities. As long as the Fed has this kind of financial firepower in their back pocket - interest rates might rise a bit - but they are certainly not going to jump sharply higher any time soon.
Mortgage investors' anxiety may be soothed further if the committee reinforces its assessment that inflation "will remain subdued in coming quarters" because of slack economic activity and a puny labor sector. All-in-all today's Fed meeting will likely go into the books as a non-event with respect to its impact on mortgage interest rates.
The Commerce Department announced earlier this morning that its preliminary estimate of first-quarter Gross Domestic Product showed economic activity shrank by 6.1%. That performance on its face was considerably weaker than most economists had anticipated. However, when analysts had a chance to drill down into the data more deeply - the number was not nearly as ugly as it first appeared. Most of the notably drop in the headline figure was attributable to the largest inventory drawdown since 1947. Believe it or not - analysts actually see the massive first-quarter inventory drawdown as a positive development for future economic growth. What initially looked like a bit of mortgage friendly data has actually morphed into a minor hindrance to the prospects of lower rates.
In a separate report the Mortgage Bankers of America announced home loan applications fell by 18.2% during the week ended April 24th - dragged lower by a big 21.9% drop in refinance applications and a far more modest 0.6% slide in applications for home purchases. During the period the average 30-year mortgage dropped 0.11% to 4.62% -- nearly matching the all-time low of 4.61% set during the week ended March 27.
Tuesday, April 28, 2009
Tuesday, April 28, 2009
Uncle Sam will be looking to borrow $35 billion in the form of 5-year notes in an auction format today. The final gavel will fall at 1:00 p.m. ET. Yesterday's big $40 billion offering of 2-year notes drew decent participation. The credit market may have a little more difficult time digesting today's 5-year and tomorrow's 7-year note offerings. It will likely be difficult for mortgage interest rates to make any headway to new lows -- for at least the next couple of days.
The members of the Federal Open Market Committee opened a two-day meeting this morning. Central bankers will be actively engaged "cussin' and discussin'" economic conditions. However, when their post-meeting statement is issued tomorrow afternoon, it is highly likely these central bankers will have decided to "wait-and-see" before initiating any new monetary policy changes.
The economic data was light but nonetheless encouraging this morning. The Conference Board reported its consumer confidence index for April rose in to a reading of 39.2 - a significant improvement from the March low of 26.9, a number that fell within shouting distance of the record low dating back to 1967. Mortgage investors are far more interested in what the consumer is actually doing - rather than how they say they are feeling - so this index created nothing more than a momentary little knee-jerk reaction in the mortgage market before it was fully discounted in favor of more meaningful macro-economic data due out in the days ahead.
Worth at least a mention in passing was other news this morning from Standard & Poor's/Case-Shiller home price survey indicating for the first time in 16 months the annual decline of the study's 10- and 20-city composite indexes did not fall enough to set a new record. The index showed the year-over-year national decline in home prices slumped 18.6% in February. Experts had anticipated a much sharper value decline. While this data certainly does not indicate a bottom in the housing sector has been reached -- it is perhaps signaling the low is now in sight. Mortgage investors shrugged this information off -- but not before making note to pay attention to next month's figures to determine if a trend change in falling home prices is actually beginning to take shape.
The members of the Federal Open Market Committee opened a two-day meeting this morning. Central bankers will be actively engaged "cussin' and discussin'" economic conditions. However, when their post-meeting statement is issued tomorrow afternoon, it is highly likely these central bankers will have decided to "wait-and-see" before initiating any new monetary policy changes.
The economic data was light but nonetheless encouraging this morning. The Conference Board reported its consumer confidence index for April rose in to a reading of 39.2 - a significant improvement from the March low of 26.9, a number that fell within shouting distance of the record low dating back to 1967. Mortgage investors are far more interested in what the consumer is actually doing - rather than how they say they are feeling - so this index created nothing more than a momentary little knee-jerk reaction in the mortgage market before it was fully discounted in favor of more meaningful macro-economic data due out in the days ahead.
Worth at least a mention in passing was other news this morning from Standard & Poor's/Case-Shiller home price survey indicating for the first time in 16 months the annual decline of the study's 10- and 20-city composite indexes did not fall enough to set a new record. The index showed the year-over-year national decline in home prices slumped 18.6% in February. Experts had anticipated a much sharper value decline. While this data certainly does not indicate a bottom in the housing sector has been reached -- it is perhaps signaling the low is now in sight. Mortgage investors shrugged this information off -- but not before making note to pay attention to next month's figures to determine if a trend change in falling home prices is actually beginning to take shape.
Monday, April 27, 2009
Friday, April 24, 2009
Players in the credit market will likely spend the balance of the day squaring up their positions and preparing for the onslaught of a record setting $101 billion worth of supply from the Treasury Department next week.
Uncle Sam will be looking to borrow $40 billion in the form of 2-year notes on Monday, $35 billion in the form of 5-year notes on Tuesday and $26 billion in 7-year notes on Wednesday. While they are "on-a-roll" the Treasury Department will announce on Wednesday how much additional supply it intends to bring to the credit markets in the form of three- and 10-year notes and 30-year bonds during the first week of May.
It will be a minor miracle should the Fed manage to steer mortgage interest rates through this deluge of government borrowing without a suffering a nick or two on the current level of note rates. We all know the law of supply and demand - "in a free market place when supply outstrips demand, prices tend to fall". We also know that in the mortgage business when prices fall - rates rise.
I look for the upward pressure on mortgage interest rates to be a bit more intense during the coming week given this morning's news of a sharp rise in Chinese gold reserves. The big "so what" factor here is that swelling Chinese gold reserves probably represent a new strategy of diversification by China - which by extension could logically mean the Chinese will be buying relatively less in the form of US Treasuries obligations in the future. Granted the Fed currently has the financial firepower to take up some of the slack caused by the potential of reduced Treasury auction participation by the Chinese - but only for a limited amount of time. You can be this event will be closely monitored for further developments by mortgage investors. You can also bet mortgage investors will likely be very hesitant to push mortgage interest rates sharply lower until the Treasury auctions of the next two weeks are complete -- and the participation levels of foreign investors can be clearly assessed.
Next week's calendar is action packed. In terms of macro-economic data Wednesday's revised first-quarter Gross Domestic Product figure and Thursday's measure of inflation pressure at the consumer level (the personal consumption index -- embedded in the March personal income and spending report) will draw the lion's share of attention from mortgage investors. These economic reports will probably be sharply overshadowed by the aforementioned three-day Treasury auctions. As if the data and auction schedule were not enough for one week - the Federal Open Market Committee will gather for a two-day meeting on Tuesday and Wednesday.
It is a very close call, but there is or are reason(s) to believe the stock market may experience a heavy round of profit-taking on or about Wednesday, April 29th. If the assessment proves accurate, the prospect for steady to fractionally lower mortgage interest rates into the second week of May.
Uncle Sam will be looking to borrow $40 billion in the form of 2-year notes on Monday, $35 billion in the form of 5-year notes on Tuesday and $26 billion in 7-year notes on Wednesday. While they are "on-a-roll" the Treasury Department will announce on Wednesday how much additional supply it intends to bring to the credit markets in the form of three- and 10-year notes and 30-year bonds during the first week of May.
It will be a minor miracle should the Fed manage to steer mortgage interest rates through this deluge of government borrowing without a suffering a nick or two on the current level of note rates. We all know the law of supply and demand - "in a free market place when supply outstrips demand, prices tend to fall". We also know that in the mortgage business when prices fall - rates rise.
I look for the upward pressure on mortgage interest rates to be a bit more intense during the coming week given this morning's news of a sharp rise in Chinese gold reserves. The big "so what" factor here is that swelling Chinese gold reserves probably represent a new strategy of diversification by China - which by extension could logically mean the Chinese will be buying relatively less in the form of US Treasuries obligations in the future. Granted the Fed currently has the financial firepower to take up some of the slack caused by the potential of reduced Treasury auction participation by the Chinese - but only for a limited amount of time. You can be this event will be closely monitored for further developments by mortgage investors. You can also bet mortgage investors will likely be very hesitant to push mortgage interest rates sharply lower until the Treasury auctions of the next two weeks are complete -- and the participation levels of foreign investors can be clearly assessed.
Next week's calendar is action packed. In terms of macro-economic data Wednesday's revised first-quarter Gross Domestic Product figure and Thursday's measure of inflation pressure at the consumer level (the personal consumption index -- embedded in the March personal income and spending report) will draw the lion's share of attention from mortgage investors. These economic reports will probably be sharply overshadowed by the aforementioned three-day Treasury auctions. As if the data and auction schedule were not enough for one week - the Federal Open Market Committee will gather for a two-day meeting on Tuesday and Wednesday.
It is a very close call, but there is or are reason(s) to believe the stock market may experience a heavy round of profit-taking on or about Wednesday, April 29th. If the assessment proves accurate, the prospect for steady to fractionally lower mortgage interest rates into the second week of May.
Thursday, April 23, 2009
Thursday, April 23, 2009
The trend trajectory of trading activity in the mortgage market is tilted slightly in favor of lower rates this morning - thanks in large part to a drop in existing home sales and another weak initial jobless claims report. Those two reports created just enough doubt about the near-term bottoming of the recession to create some selling pressure in the stock market. The government said claims for first-time jobless benefits climbed 27,000 during the week ended April 18th while existing home sales for March posted a sharper than expected 3.0% decline.
The Fed will be banging around in the credit market through about 2:00 p.m. ET today looking to buy longer-dated Treasury securities as part of the central bank's $300 billion program to support steady to lower rates for consumers and businesses. The results of this program on the trend trajectory of mortgage interest rates can best be described as "mixed" in purely academic terms - but no matter how you slice and dice it - in our business a steady mortgage interest rate environment trumps rising rates every time.
As mentioned in this space yesterday I think we can expect mortgage interest rates to remain relatively steady at, or near current levels until either data, or events, or both become significant enough to serve as a catalyst to spur an increase in trading activity in the mortgage market.
Tomorrow's durable goods orders and new home sales figures for March won't likely do the "trick" in terms of ramping up trading levels for mortgage-backed securities. So it looks like we will once again be temporarily joined-at-the-hip with the stock markets. Higher stock prices will tend to drag mortgage interest rates higher while lower stocks prices will probably support steady to perhaps fractionally lower rates.
The Fed will be banging around in the credit market through about 2:00 p.m. ET today looking to buy longer-dated Treasury securities as part of the central bank's $300 billion program to support steady to lower rates for consumers and businesses. The results of this program on the trend trajectory of mortgage interest rates can best be described as "mixed" in purely academic terms - but no matter how you slice and dice it - in our business a steady mortgage interest rate environment trumps rising rates every time.
As mentioned in this space yesterday I think we can expect mortgage interest rates to remain relatively steady at, or near current levels until either data, or events, or both become significant enough to serve as a catalyst to spur an increase in trading activity in the mortgage market.
Tomorrow's durable goods orders and new home sales figures for March won't likely do the "trick" in terms of ramping up trading levels for mortgage-backed securities. So it looks like we will once again be temporarily joined-at-the-hip with the stock markets. Higher stock prices will tend to drag mortgage interest rates higher while lower stocks prices will probably support steady to perhaps fractionally lower rates.
Wednesday, April 22, 2009
There is nothing in the way of economic data, Treasury auctions, or Federal Reserve purchases scheduled for today -- which leaves mortgage investors no clear incentive to drive rates one direction or the other.
Against this featureless backdrop the trend trajectory of mortgage interest rates will probably once again be dictated by trading activity in the stock markets. Stock investors have been inundated with first-quarter earnings reports from Corporate America this week. So far, most of the reports have either matched or exceeded expectations - a condition which is causing capital that might have otherwise drifted into the relative safety of the bond and mortgage-backed securities market to remain "in-play" over in the riskier stock markets
Look for mortgage interest rates to remain relatively steady at, or near current levels until either data or events or both become significant enough to serve as a catalyst to spur an increase in trading activity in the mortgage market.
Tomorrow's durable goods orders and existing home sales figures for March won't likely do the "trick" - and Friday's March new home sales number is not likely to draw much more than a passing glance from mortgage investors. So it looks like we are temporarily joined-at-the-hip with the stock markets. Higher stock prices will tend to drag mortgage interest rates higher while lower stocks prices will probably support steady to perhaps fractionally lower mortgage rates.
FYI: The Mortgage Bankers of America reported this morning that their seasonally adjusted mortgage application index rose 3.3% during the week ended April 17th. Refinance applications were up 7.7% while purchase money requests slipped 4.2% lower during the period.
Against this featureless backdrop the trend trajectory of mortgage interest rates will probably once again be dictated by trading activity in the stock markets. Stock investors have been inundated with first-quarter earnings reports from Corporate America this week. So far, most of the reports have either matched or exceeded expectations - a condition which is causing capital that might have otherwise drifted into the relative safety of the bond and mortgage-backed securities market to remain "in-play" over in the riskier stock markets
Look for mortgage interest rates to remain relatively steady at, or near current levels until either data or events or both become significant enough to serve as a catalyst to spur an increase in trading activity in the mortgage market.
Tomorrow's durable goods orders and existing home sales figures for March won't likely do the "trick" - and Friday's March new home sales number is not likely to draw much more than a passing glance from mortgage investors. So it looks like we are temporarily joined-at-the-hip with the stock markets. Higher stock prices will tend to drag mortgage interest rates higher while lower stocks prices will probably support steady to perhaps fractionally lower mortgage rates.
FYI: The Mortgage Bankers of America reported this morning that their seasonally adjusted mortgage application index rose 3.3% during the week ended April 17th. Refinance applications were up 7.7% while purchase money requests slipped 4.2% lower during the period.
Tuesday, April 21, 2009
Tuesday, April 21, 2009
Trading activity in the mortgage market is once again light and sporadic. The Fed's presence in the market continues to insure mortgage interest rates are unlikely to make a sustained move to higher levels just yet. Mr. Bernanke and his fellow central bankers have only spent roughly $350 billion of the $1.25 trillion they have in their back pocket earmarked specifically to support the mortgage market. Once the remaining balance in the Fed's direct purchase account of mortgage-backed securities drops below $600 billion -- mortgage interest rates are likely to begin moving higher at an accelerating pace. But for the time being note rates for 30-year fixed-rate mortgages continue to hover within a whisper of record lows.
With the prospect of some nasty inflation developing a year or two out, courtesy of current Federal Reserve and government policies, owing residential real estate has become a lot more attractive than it was just six months ago. While it is true housing won't exactly set-the-world-on-fire in an inflationary environment -- it will likely beat the heck out of many investment alternatives. If my assessment proves accurate, look for the demand for purchase money mortgages to begin ramping up notably as an increasing number of savvy buyers recognize the all-time best opportunity to acquire a home is probably now upon us.
With the prospect of some nasty inflation developing a year or two out, courtesy of current Federal Reserve and government policies, owing residential real estate has become a lot more attractive than it was just six months ago. While it is true housing won't exactly set-the-world-on-fire in an inflationary environment -- it will likely beat the heck out of many investment alternatives. If my assessment proves accurate, look for the demand for purchase money mortgages to begin ramping up notably as an increasing number of savvy buyers recognize the all-time best opportunity to acquire a home is probably now upon us.
Monday, April 20, 2009
Monday, April 20, 2009
As expected, Wall Street is off to a weak start this morning as renewed worries about the financial sector are pushing stock prices lower. Bank of America reported a gain for the quarter but the profit was heavily reliant on one-time items. Against this wobbly profit profile the bank also reported a big increase in troubled loans.
That was all many stock traders needed to hear to induce them to sell stocks and park the proceeds in lower risk investment vehicles like Treasury obligations and mortgage-backed securities - a definite positive development for the prospects of steady to perhaps fractionally lower mortgage interest rates.
The mortgage market even got a friendly little unintentional nod from the Conference Board's* leading economic index, which fell by an unexpected 0.3%. This index is designed to forecast economic activity six- to nine-months ahead. Even though the index's accuracy rate is not very good - the March drop in this forward looking economic indicator undoubtedly contributed to stock investors' decision to liquidate existing positions in favor of the relatively safe harbor offered by the bond and mortgage-backed securities market.
This week's round of macro-economic data will likely be largely, if not completely, overshadowed by the torrent of earnings reports due to be released by Corporate America. If it turns out Corporate America doesn't have much to crow about yet -- and their forward looking earnings guidance is either weak or even nonexistent - it is highly likely the selling activity in the stock market that began this morning will accelerate as the week progresses. If the assessment proves accurate, look for market conditions to continue to favor steady to fractionally lower mortgage interest rates.
That was all many stock traders needed to hear to induce them to sell stocks and park the proceeds in lower risk investment vehicles like Treasury obligations and mortgage-backed securities - a definite positive development for the prospects of steady to perhaps fractionally lower mortgage interest rates.
The mortgage market even got a friendly little unintentional nod from the Conference Board's* leading economic index, which fell by an unexpected 0.3%. This index is designed to forecast economic activity six- to nine-months ahead. Even though the index's accuracy rate is not very good - the March drop in this forward looking economic indicator undoubtedly contributed to stock investors' decision to liquidate existing positions in favor of the relatively safe harbor offered by the bond and mortgage-backed securities market.
This week's round of macro-economic data will likely be largely, if not completely, overshadowed by the torrent of earnings reports due to be released by Corporate America. If it turns out Corporate America doesn't have much to crow about yet -- and their forward looking earnings guidance is either weak or even nonexistent - it is highly likely the selling activity in the stock market that began this morning will accelerate as the week progresses. If the assessment proves accurate, look for market conditions to continue to favor steady to fractionally lower mortgage interest rates.
Friday, April 17, 2009
Friday, April 17, 2009
Due to the complete lack of economic data to consider today and for a large part of the coming week - mortgage investors will shift their focus to the deluge of earnings reports from Corporate America due over the course of the next several days. Even more important than the earnings scorecard -- mortgage investors will be keenly interested in the business outlook each of the companies will provide. The forward looking expectations of Corporate America could either reinforce or undermine mortgage investors' assessment that recessionary influences will begin to ebb in the second-half of the year.
If forward looking business activity projections for the majority of companies remain bleak - look for stock prices to fall and directly benefit the prospects of lower mortgage interest rates. If that assessment proves to be wrong and Corporate America paints of picture of brighter business conditions developing in the next 90 days - stock prices will almost surely rise, dragging mortgage interest rates higher in the process.
If forward looking business activity projections for the majority of companies remain bleak - look for stock prices to fall and directly benefit the prospects of lower mortgage interest rates. If that assessment proves to be wrong and Corporate America paints of picture of brighter business conditions developing in the next 90 days - stock prices will almost surely rise, dragging mortgage interest rates higher in the process.
Thursday, April 16, 2009
Thursday, April 16, 2009
Today's macro-economic news did not offer mortgage investors much to chew on so the whole thing was shrugged-off.
The Labor Department said the number of Americans continuing to claim jobless aid hit a record 6.02 million during the week of April 4th - even though first-time claims for jobless benefits dropped unexpectedly by 53,000.
Simultaneously with the Labor Department report -- the Commerce Department said housing starts fell 10.8% on a seasonally adjusted annual basis, the second lowest pace since records were first kept in 1959. Building permits during the period dropped by 9.0%. The big drop in housing starts and building permits was largely a function of the multi-family component of the data set. Single family starts and permits were essentially flat during the reporting period.
Other than this morning's sampling of economic news, traders will likely watch dispassionately as the Fed moves into the credit market today to purchase varying maturities of Treasury Inflation Protected Securities (TIPS) as part of the central bank's $300 billion program aimed at lowering long-term borrowing costs for consumers and businesses. No one is sure what the size of the Fed's buying appetite is today - and it really doesn't matter much - the mere fact that the Fed is still an active buyer in the market place is enough to support relatively steady rates.
For the balance of the day look for mortgage interest rates to take their directional cues from trading action in the stock markets. Higher stock prices will tend to put some upward pressure rates -- while falling stock prices should be supportive of steady to perhaps fractionally lower mortgage rates.
The Labor Department said the number of Americans continuing to claim jobless aid hit a record 6.02 million during the week of April 4th - even though first-time claims for jobless benefits dropped unexpectedly by 53,000.
Simultaneously with the Labor Department report -- the Commerce Department said housing starts fell 10.8% on a seasonally adjusted annual basis, the second lowest pace since records were first kept in 1959. Building permits during the period dropped by 9.0%. The big drop in housing starts and building permits was largely a function of the multi-family component of the data set. Single family starts and permits were essentially flat during the reporting period.
Other than this morning's sampling of economic news, traders will likely watch dispassionately as the Fed moves into the credit market today to purchase varying maturities of Treasury Inflation Protected Securities (TIPS) as part of the central bank's $300 billion program aimed at lowering long-term borrowing costs for consumers and businesses. No one is sure what the size of the Fed's buying appetite is today - and it really doesn't matter much - the mere fact that the Fed is still an active buyer in the market place is enough to support relatively steady rates.
For the balance of the day look for mortgage interest rates to take their directional cues from trading action in the stock markets. Higher stock prices will tend to put some upward pressure rates -- while falling stock prices should be supportive of steady to perhaps fractionally lower mortgage rates.
Wednesday, April 15, 2009
Wednesday, April 15, 2009
Tax day!!
Overall consumer prices fell by 0.1% in March and recorded their first 12-month drop since 1955 as slumping demand amid a severe recession pushed down energy and food costs. Core consumer prices, a value that excludes the more volatile food and energy components, rose 0.2%. The upward pressure on core consumer prices is a little stronger than some analysts would like to see -- but not strong enough at this juncture to support any major fears of inflation threats.
In a separate report Federal Reserve data showed industrial production fell an unexpectedly sharp 1.5% in March - capping a brutal quarter in the manufacturing sector as businesses pared orders and slashed inventories in the face of plunging demand as the recession deepened. The March decline was the sixth consecutive month of puny numbers from the nation's factories. The capacity utilization rate dropped to 69.3%, the lowest levels since the government began gathering this data in 1967.
Mortgage applications for both purchase and refinance fell last week even as mortgage interest rates treaded water just above record lows set two-weeks ago according to data released today by the Mortgage Bankers of America. Total mortgage applications fell by 11% during the week ended April 10th. Purchase applications slumped 11.3% while refinance loan requests dropped by 10.9%. During the week ended April 10th the average rate for fixed-rate 30-year mortgages dipped to 4.70% from 4.73% the prior week. During the last week of March 30-year fixed-rates hit an all-time low of 4.61%.
Today's battery of economic data reports general falls into the mortgage market neutral category. For the balance of the day look for mortgage interest rates to trade their direction cues from trading action in the stock markets. Higher stock prices will tend to put some upward pressure on note rates while falling stock prices should be supportive of steady to perhaps fractionally lower mortgage rates.
Overall consumer prices fell by 0.1% in March and recorded their first 12-month drop since 1955 as slumping demand amid a severe recession pushed down energy and food costs. Core consumer prices, a value that excludes the more volatile food and energy components, rose 0.2%. The upward pressure on core consumer prices is a little stronger than some analysts would like to see -- but not strong enough at this juncture to support any major fears of inflation threats.
In a separate report Federal Reserve data showed industrial production fell an unexpectedly sharp 1.5% in March - capping a brutal quarter in the manufacturing sector as businesses pared orders and slashed inventories in the face of plunging demand as the recession deepened. The March decline was the sixth consecutive month of puny numbers from the nation's factories. The capacity utilization rate dropped to 69.3%, the lowest levels since the government began gathering this data in 1967.
Mortgage applications for both purchase and refinance fell last week even as mortgage interest rates treaded water just above record lows set two-weeks ago according to data released today by the Mortgage Bankers of America. Total mortgage applications fell by 11% during the week ended April 10th. Purchase applications slumped 11.3% while refinance loan requests dropped by 10.9%. During the week ended April 10th the average rate for fixed-rate 30-year mortgages dipped to 4.70% from 4.73% the prior week. During the last week of March 30-year fixed-rates hit an all-time low of 4.61%.
Today's battery of economic data reports general falls into the mortgage market neutral category. For the balance of the day look for mortgage interest rates to trade their direction cues from trading action in the stock markets. Higher stock prices will tend to put some upward pressure on note rates while falling stock prices should be supportive of steady to perhaps fractionally lower mortgage rates.
Thursday, April 9, 2009
Thursday, April 9, 2009
Mortgage interest rates moved fractionally higher this morning after a report from the Labor Department showed a larger-than-expected drop in the weekly jobless claims number and as stock prices bounced higher on Wells Fargo's upbeat quarterly earnings report. Mortgage interest rates are also feeling some upward pressure as Uncle Sam thrashes around in the credit market this morning looking to borrow $18 billion in the form of 10-year notes. The credit markets will close early ahead of the Good Friday Holiday which many suspect leaves trading levels thin in the face of this sizeable amount of supply from the Treasury. The Treasury auction will conclude at 11:30 a.m. ET and I'll provide details on my website as soon as possible thereafter.
Next week's economic calendar offers an Easter basket brimming with data - ranging from Monday's Producer Price Index and Retail Sales figures for March through last month's Housing Starts and Building Permits numbers on Thursday. The big chocolate bunny in the middle will be the official start of quarterly earnings season for corporate America. Earnings are expected to fall - but the magnitude of the declines will make all the difference for the trend trajectory of mortgage interest rates. Better-than-expected earnings, especially from banks, will tend to drive stock prices and mortgage interest rates higher. Earnings that generally match or fall below investors' anticipated levels will likely be supportive of steady to fractionally lower mortgage interest rates. It is a close call - but by the end of the week look for stock prices to be sliding lower to the direct benefit of steady to higher mortgage interest rates.
Next week's economic calendar offers an Easter basket brimming with data - ranging from Monday's Producer Price Index and Retail Sales figures for March through last month's Housing Starts and Building Permits numbers on Thursday. The big chocolate bunny in the middle will be the official start of quarterly earnings season for corporate America. Earnings are expected to fall - but the magnitude of the declines will make all the difference for the trend trajectory of mortgage interest rates. Better-than-expected earnings, especially from banks, will tend to drive stock prices and mortgage interest rates higher. Earnings that generally match or fall below investors' anticipated levels will likely be supportive of steady to fractionally lower mortgage interest rates. It is a close call - but by the end of the week look for stock prices to be sliding lower to the direct benefit of steady to higher mortgage interest rates.
Wednesday, April 8, 2009
Wednesday, April 8, 2009
The Commerce Department reported this morning that sales for U.S. wholesalers rose for the first time in eight months, contributing to a record drop in inventories. Sales rose 0.6% while inventory levels fell by 1.5% -- the biggest one month decline for wholesale inventories since records began in 1992. At the current sales pace, it would take 1.31 months for distributors to deplete inventory on hand. The sharp reduction in stockpiles means that a small increase in the pace of sales will generate a significant increase in the size of manufacturing and supplier orders - a major required cog in the machinery of economic recovery. While this data means nothing in terms of its impact on today's rate sheets - you can bet mortgage investors will begin to pay closer attention to this data series in the coming months.
In a separate report the Mortgage Bankers of America said the pace of mortgage applications rose last week, lead by demand for home purchase loans. For the week ended April 3rd the MBA's overall index of mortgage applications, which includes both requests for purchase and refinance loans, increased 4.7%. The purchase component of the overall index was up 11.1% while the refinance component posted an increase of 3.2%. The MBA said borrowing cost on 30-year fixed rate mortgages, excluding fees, averaged 4.73%, up 0.12 percentage points from the record low the previous week -- but well below the 5.78% that was recorded during this same week one-year ago. On a year-over-year basis mortgage applications are up 72.4%.
Uncle Sam will be in the credit market today looking to borrow $38 billion in the form of three-year notes. This offering should be well bid and should therefore create little, if any noticeable impact on mortgage interest rates. The Treasury auction will conclude at 1:00 p.m. ET.
Still to come at 2:00 p.m. ET today will be the release of the minutes from the Federal Open Market Committee March meeting. Investors will peruse this document looking for further insight into central bankers' decision to directly purchase $300 billion of Treasury obligations and to add an additional $750 billion to their available funds to purchase mortgage-backed securities. It is highly unlikely anything contained in this document will catch market participants by surprise. Look for this event to have no perceptible impact on the current trend trajectory of mortgage interest rates.
In a separate report the Mortgage Bankers of America said the pace of mortgage applications rose last week, lead by demand for home purchase loans. For the week ended April 3rd the MBA's overall index of mortgage applications, which includes both requests for purchase and refinance loans, increased 4.7%. The purchase component of the overall index was up 11.1% while the refinance component posted an increase of 3.2%. The MBA said borrowing cost on 30-year fixed rate mortgages, excluding fees, averaged 4.73%, up 0.12 percentage points from the record low the previous week -- but well below the 5.78% that was recorded during this same week one-year ago. On a year-over-year basis mortgage applications are up 72.4%.
Uncle Sam will be in the credit market today looking to borrow $38 billion in the form of three-year notes. This offering should be well bid and should therefore create little, if any noticeable impact on mortgage interest rates. The Treasury auction will conclude at 1:00 p.m. ET.
Still to come at 2:00 p.m. ET today will be the release of the minutes from the Federal Open Market Committee March meeting. Investors will peruse this document looking for further insight into central bankers' decision to directly purchase $300 billion of Treasury obligations and to add an additional $750 billion to their available funds to purchase mortgage-backed securities. It is highly unlikely anything contained in this document will catch market participants by surprise. Look for this event to have no perceptible impact on the current trend trajectory of mortgage interest rates.
Tuesday, April 7, 2009
Tuesday, April 7, 2009
There is nothing on this holiday-shortened week's economic calendar that will likely drive mortgage interest rates in one direction or the other -- leaving the trend trajectory of rates to be largely determined by trading action in the equity markets.
There are a number of technical reasons to believe the rally in the stock markets that began in mid-March is running out of upward momentum. If the assessment proves accurate, falling stock prices will almost certainly support steady to fractionally lower mortgage interest rates.
The Treasury Department will sell $6 billion of 10-year inflation-indexed notes today, $35 billion of 3-year notes tomorrow and $18 billion of 10-year notes on Thursday. The 10-year inflation-indexed securities and the 3-year notes will likely sell well -- but the Fed will probably have to whip out their checkbook and buy a significant portion of Thursday's 10-year note offering to keep yields - and by extension mortgage interest rates - from moving noticeably higher.
Look for investors to attempt to nudge the yield of the 10-year note higher over the course of the next two days -- but when the final gavel falls to conclude bidding at 11:30 a.m. ET on Thursday chances are the Fed, the weak economy and a sell-off in the stock markets will have combined to sharply limit or outright defuse any influence this 10-year note auction might otherwise have on the current level of mortgage interest rates.
There are a number of technical reasons to believe the rally in the stock markets that began in mid-March is running out of upward momentum. If the assessment proves accurate, falling stock prices will almost certainly support steady to fractionally lower mortgage interest rates.
The Treasury Department will sell $6 billion of 10-year inflation-indexed notes today, $35 billion of 3-year notes tomorrow and $18 billion of 10-year notes on Thursday. The 10-year inflation-indexed securities and the 3-year notes will likely sell well -- but the Fed will probably have to whip out their checkbook and buy a significant portion of Thursday's 10-year note offering to keep yields - and by extension mortgage interest rates - from moving noticeably higher.
Look for investors to attempt to nudge the yield of the 10-year note higher over the course of the next two days -- but when the final gavel falls to conclude bidding at 11:30 a.m. ET on Thursday chances are the Fed, the weak economy and a sell-off in the stock markets will have combined to sharply limit or outright defuse any influence this 10-year note auction might otherwise have on the current level of mortgage interest rates.
Monday, April 6, 2009
Monday, April 6, 2009
There is nothing on this holiday-shortened week's economic calendar that will likely drive mortgage interest rates in one direction or other leaving the trend trajectory of rates to be determined by trading action in the equity markets.
There are a number of technical reasons to believe the rally in the stock markets that began in mid-March is running out of upward momentum. If the assessment proves accurate, falling stock prices will almost certainly support steady to fractionally lower mortgage interest rates.
The Fed was in the credit markets earlier this morning to purchase $2.5 billion of Treasury obligations as part of its $300 billion effort to support the economy and keep consumer and business interest rates low. The impact of the Fed's intervention in the government debt market has waned significantly as traders have discounted the Fed's direct-purchase of Treasury debt as largely an exercise in tokenism. An increasing number of market participants view the program's initial funding level of $300 billion as nothing more than a drop-in-the-bucket compared to government's intention to borrow $2.+ trillion before the end of September.
The Treasury Department will sell $6 billion of 10-year inflation-indexed notes tomorrow, $35 billion of 3-year notes on Wednesday and $18 billion of 10-year notes on Thursday. The 10-year inflation-indexed securities and the 3-year notes will likely sell well -- but the Fed will probably have to whip out their checkbook and buy a significant portion of Thursday's 10-year note offering to keep yields - and by extension mortgage interest rates - from moving noticeably higher. The 10-year note auction sets up as this week's "wildcard" event. (The 10-year note auction will conclude at 11:30 a.m. ET on Thursday to allow auction administrators to wrap up details prior to the bond market's early close at 2:00 p.m.)
There are a number of technical reasons to believe the rally in the stock markets that began in mid-March is running out of upward momentum. If the assessment proves accurate, falling stock prices will almost certainly support steady to fractionally lower mortgage interest rates.
The Fed was in the credit markets earlier this morning to purchase $2.5 billion of Treasury obligations as part of its $300 billion effort to support the economy and keep consumer and business interest rates low. The impact of the Fed's intervention in the government debt market has waned significantly as traders have discounted the Fed's direct-purchase of Treasury debt as largely an exercise in tokenism. An increasing number of market participants view the program's initial funding level of $300 billion as nothing more than a drop-in-the-bucket compared to government's intention to borrow $2.+ trillion before the end of September.
The Treasury Department will sell $6 billion of 10-year inflation-indexed notes tomorrow, $35 billion of 3-year notes on Wednesday and $18 billion of 10-year notes on Thursday. The 10-year inflation-indexed securities and the 3-year notes will likely sell well -- but the Fed will probably have to whip out their checkbook and buy a significant portion of Thursday's 10-year note offering to keep yields - and by extension mortgage interest rates - from moving noticeably higher. The 10-year note auction sets up as this week's "wildcard" event. (The 10-year note auction will conclude at 11:30 a.m. ET on Thursday to allow auction administrators to wrap up details prior to the bond market's early close at 2:00 p.m.)
Friday, April 3, 2009
Mortgage investors nudged rate sheet prices lower this morning after government data showed job losses in March were not as dismal as many had anticipated.
Employers cut 663,000 jobs in March, a little steeper drop than the consensus estimate for a loss of 650,000. The actual job loss was far less severe than the 700,000 "whisper" number that was floating through the marketplace late yesterday afternoon.
Shortly after the March nonfarm payroll data hit the wires the Institute of Supply Management announced their service sector index posted a reading of 40.8% last month. This data leaves little doubt the downturn in demand and fallout from the global credit crunch is continuing to take a severe toll on the economy.
Looking ahead to the coming holiday shortened week the direction of mortgage interest rates will likely be most influenced by the two scheduled Treasury auctions. Uncle Sam will be in the credit market on Wednesday and Thursday looking to borrow more than $50 billion in the form of 3- and 10-year notes. This new incoming supply will likely serve to put a temporary floor under mortgage interest rates.
Next week's economic calendar offers nothing of consequence and traders will likely begin slipping away from their desks early on Thursday to get a jump on the first three-day weekend of the spring. The mortgage market will be closed all day on Friday in observance of the Good Friday Holiday.
Employers cut 663,000 jobs in March, a little steeper drop than the consensus estimate for a loss of 650,000. The actual job loss was far less severe than the 700,000 "whisper" number that was floating through the marketplace late yesterday afternoon.
Shortly after the March nonfarm payroll data hit the wires the Institute of Supply Management announced their service sector index posted a reading of 40.8% last month. This data leaves little doubt the downturn in demand and fallout from the global credit crunch is continuing to take a severe toll on the economy.
Looking ahead to the coming holiday shortened week the direction of mortgage interest rates will likely be most influenced by the two scheduled Treasury auctions. Uncle Sam will be in the credit market on Wednesday and Thursday looking to borrow more than $50 billion in the form of 3- and 10-year notes. This new incoming supply will likely serve to put a temporary floor under mortgage interest rates.
Next week's economic calendar offers nothing of consequence and traders will likely begin slipping away from their desks early on Thursday to get a jump on the first three-day weekend of the spring. The mortgage market will be closed all day on Friday in observance of the Good Friday Holiday.
Friday, April 3, 2009
Thursday, April 2, 2009
A rally in the stock market sparked by this morning's announcement the Financial Accounting Standards Board has voted to give financial firms more flexibility in how they apply mark-to-market accounting rules has created some modest downward pressure on mortgage rate sheet prices.
FASB is an independent standard setter for accounting rules. The board has been under immense pressure from Congress to relax the mark-to-market accounting rule in the belief it will help fix banks and the country's financial problems. At a mid-March hearing, lawmakers told FASB chairman Robert Hertz to move quickly on new guidance or Congress would pass legislation to loosen the rules. Some say FASB made the changes in the mark-to-market standards to preserve their independence - but others say there is no independence when the government mandates change.
In any case, under the new guidelines financial firms will now have more flexibility to exercise their own judgment to determine if a market for an asset is inactive and if a transaction is distressed. Banks will be able to rely on cash flow models to set the price of an asset, generating in many cases a higher price than what the market is actually offering at the time. FASB said the new mark-to-market guidance will be effective for the second quarter, though exceptions may be made for some firms to use the new rule when reporting their first-quarter financial performance. With the single stroke of the pen many financial institutions' capital positions improved by an estimated 20% or more this morning. Companies weighted down by unmarketable mortgage-backed securities may see their balance sheet loses trimmed by 50% or more once the new rule is applied.
The jury will be out on this new accounting rule change for awhile. The rubber-will-really-meet-the-road on this issue once these financial institutions attempt to raise capital from other resources than the government. The flexibility to do a bit of financial creative writing and the direct impact this ability will have on the effective assessment of corporate credit worthiness by private investors may not mix well at all.
Taking center-stage in terms of the economic news today was the Labor Department's initial jobless claims report for the week ended March 28th. The number of Americans filing for first-time jobless benefits swelled by 12,000 last week -- while the number of unemployed workers continuing to receive benefits climbed to its highest level since 1982. Since it fell outside of the survey period - this morning's initial jobless claims data will have no impact on tomorrow's March nonfarm payroll figures.
Traders are prepared for extremely dire headline employment numbers when the government releases their March Nonfarm Payroll report at 8:30 a.m. ET tomorrow morning. The consensus estimate is calling for a loss of 650,000 jobs and a jump in the national jobless rate to 8.5% from its current level of 8.1%. Numbers that match or exceed the consensus estimate won't impact the mortgage market much while a lower than expected headline number and/or a jobless rate less than 8.5% will almost certainly put some noticeable upward pressure on rates. The probabilities favor a March nonfarm payroll report that either matches or closely approximates the consensus estimate -- rendering Friday's data virtually meaningless in terms of its influence on the mortgage market.
Here's a bit of good news from Freddie Mac. The average 30-year home loan rate fell 0.07 percentage points this week to 4.78% -- the lowest rate ever recorded by Freddie since they first began tracking them weekly in 1971. For comparison sake -- this week's rate is 1.10 percentage points lower than where it was during this same week one year ago.
FASB is an independent standard setter for accounting rules. The board has been under immense pressure from Congress to relax the mark-to-market accounting rule in the belief it will help fix banks and the country's financial problems. At a mid-March hearing, lawmakers told FASB chairman Robert Hertz to move quickly on new guidance or Congress would pass legislation to loosen the rules. Some say FASB made the changes in the mark-to-market standards to preserve their independence - but others say there is no independence when the government mandates change.
In any case, under the new guidelines financial firms will now have more flexibility to exercise their own judgment to determine if a market for an asset is inactive and if a transaction is distressed. Banks will be able to rely on cash flow models to set the price of an asset, generating in many cases a higher price than what the market is actually offering at the time. FASB said the new mark-to-market guidance will be effective for the second quarter, though exceptions may be made for some firms to use the new rule when reporting their first-quarter financial performance. With the single stroke of the pen many financial institutions' capital positions improved by an estimated 20% or more this morning. Companies weighted down by unmarketable mortgage-backed securities may see their balance sheet loses trimmed by 50% or more once the new rule is applied.
The jury will be out on this new accounting rule change for awhile. The rubber-will-really-meet-the-road on this issue once these financial institutions attempt to raise capital from other resources than the government. The flexibility to do a bit of financial creative writing and the direct impact this ability will have on the effective assessment of corporate credit worthiness by private investors may not mix well at all.
Taking center-stage in terms of the economic news today was the Labor Department's initial jobless claims report for the week ended March 28th. The number of Americans filing for first-time jobless benefits swelled by 12,000 last week -- while the number of unemployed workers continuing to receive benefits climbed to its highest level since 1982. Since it fell outside of the survey period - this morning's initial jobless claims data will have no impact on tomorrow's March nonfarm payroll figures.
Traders are prepared for extremely dire headline employment numbers when the government releases their March Nonfarm Payroll report at 8:30 a.m. ET tomorrow morning. The consensus estimate is calling for a loss of 650,000 jobs and a jump in the national jobless rate to 8.5% from its current level of 8.1%. Numbers that match or exceed the consensus estimate won't impact the mortgage market much while a lower than expected headline number and/or a jobless rate less than 8.5% will almost certainly put some noticeable upward pressure on rates. The probabilities favor a March nonfarm payroll report that either matches or closely approximates the consensus estimate -- rendering Friday's data virtually meaningless in terms of its influence on the mortgage market.
Here's a bit of good news from Freddie Mac. The average 30-year home loan rate fell 0.07 percentage points this week to 4.78% -- the lowest rate ever recorded by Freddie since they first began tracking them weekly in 1971. For comparison sake -- this week's rate is 1.10 percentage points lower than where it was during this same week one year ago.
Wednesday, April 1, 2009
Wednesday, April 1,2009
Earlier this morning major media outlets were breathlessly reporting the ADP Employer Services report showed private sector job losses accelerated to 742,000 - a number notably higher than most economists' had expected.
The fact that mortgage investors gave the ADP data little more than a disinterested yawn speaks volumes about how much "bad" news regarding the labor sector is already priced into the market. Traders are prepared for extremely dire headline employment numbers when the government releases their March Nonfarm Payroll report at 8:30 a.m. ET on Friday. The consensus estimate is calling for a loss of 650,000 jobs and a jump in the national jobless rate to 8.5% from its current level of 8.1%. Numbers that match or exceed the consensus estimate won't impact the mortgage market much while a lower than expected headline number and/or a jobless rate less than 8.5% will almost certainly put some noticeable upward pressure on rates. The probabilities favor a March nonfarm payroll report that either matches or closely approximates the consensus estimate - rendering Friday's data virtually meaningless in terms of its influence on the mortgage market.
In a separate report this morning the Institute of Supply Management said its' March manufacturing index posted a reading of 36.3 - slightly higher than most analysts had anticipated, and well ahead of February's 35.8 reading. The manufacturing sector remains weak, but recent figures covering everything from factory employment to durable goods orders suggest the rate of decline is beginning to level out just a bit.
Mortgage investors live in the future - not the present. While this report had no impact on today's rate sheets you can bet that next month's Institute of Supply Management report will draw more than the usual amount of attention. Investors will be keenly interested in the data - particularly if the April report confirms a trend to stronger performance in the manufacturing sector is beginning to manifest itself which would be a preliminary indication that perhaps the worst of the recession is behind us.
To round things out this morning the Mortgage Bankers of America released their application index for the week ended March 27th. The purchase index was little changed, squeaking out a 0.1% gain while the refinancing gauge gained 3.1%. During the week mortgage interest rates set fresh record lows.
Since last week Thursday the central bank has purchased $17.5 billion in Treasuries, as part of a six-month $300 billion program designed to lower consumer interest rates and stimulate economic activity. The Fed will add to their growing Treasury portfolio with purchases of Treasury obligations maturing in the next three to four years today and will return with an encore performance tomorrow when they will look to buy government debt maturing in four to seven years.
Even with their massive financial-fire-power the central bank may not be able to prevent mortgage interest rates from rising fractionally higher - but you can take-it-to-the-bank that as long as the Fed maintains its' market presence - mortgage interest rates are unlikely to rocket sharply higher from current levels. This is definitely not a forever story - but for the time being - the central bank is providing a terrific benefit to lenders and borrowers alike.
The fact that mortgage investors gave the ADP data little more than a disinterested yawn speaks volumes about how much "bad" news regarding the labor sector is already priced into the market. Traders are prepared for extremely dire headline employment numbers when the government releases their March Nonfarm Payroll report at 8:30 a.m. ET on Friday. The consensus estimate is calling for a loss of 650,000 jobs and a jump in the national jobless rate to 8.5% from its current level of 8.1%. Numbers that match or exceed the consensus estimate won't impact the mortgage market much while a lower than expected headline number and/or a jobless rate less than 8.5% will almost certainly put some noticeable upward pressure on rates. The probabilities favor a March nonfarm payroll report that either matches or closely approximates the consensus estimate - rendering Friday's data virtually meaningless in terms of its influence on the mortgage market.
In a separate report this morning the Institute of Supply Management said its' March manufacturing index posted a reading of 36.3 - slightly higher than most analysts had anticipated, and well ahead of February's 35.8 reading. The manufacturing sector remains weak, but recent figures covering everything from factory employment to durable goods orders suggest the rate of decline is beginning to level out just a bit.
Mortgage investors live in the future - not the present. While this report had no impact on today's rate sheets you can bet that next month's Institute of Supply Management report will draw more than the usual amount of attention. Investors will be keenly interested in the data - particularly if the April report confirms a trend to stronger performance in the manufacturing sector is beginning to manifest itself which would be a preliminary indication that perhaps the worst of the recession is behind us.
To round things out this morning the Mortgage Bankers of America released their application index for the week ended March 27th. The purchase index was little changed, squeaking out a 0.1% gain while the refinancing gauge gained 3.1%. During the week mortgage interest rates set fresh record lows.
Since last week Thursday the central bank has purchased $17.5 billion in Treasuries, as part of a six-month $300 billion program designed to lower consumer interest rates and stimulate economic activity. The Fed will add to their growing Treasury portfolio with purchases of Treasury obligations maturing in the next three to four years today and will return with an encore performance tomorrow when they will look to buy government debt maturing in four to seven years.
Even with their massive financial-fire-power the central bank may not be able to prevent mortgage interest rates from rising fractionally higher - but you can take-it-to-the-bank that as long as the Fed maintains its' market presence - mortgage interest rates are unlikely to rocket sharply higher from current levels. This is definitely not a forever story - but for the time being - the central bank is providing a terrific benefit to lenders and borrowers alike.
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