As you are probably aware -- the House of Representatives passed a sweeping health care reform bill yesterday in a special weekend session. The overall cost of the new health care program is expected to be $940 billion over ten years to provide coverage to 32 million uninsured Americans. According to the government, the cost of the program will be completely covered by a new tax on the highest earners, fees on health-care companies and hundreds of billions of dollars in Medicare savings As far as credit market participants are concerned this morning -- the enormous cost of the health care legislation is not troubling -- at least not today anyway.
Repeat from Friday's commentary: To finance the expanding national deficit the government will sell $44 billion of 2-year notes on Tuesday, $42 billion of 5-year notes on Wednesday and a $32 billion batch of 7-year notes on Thursday. Barring a "surprise" news event, the credit markets will likely absorb this new supply with little trouble. The world is awash in excess capital and people are still aggressively seeking hi-grade, low-risk investment opportunities. Nothing currently fits that profile better than dollar denominated Treasury debt obligations and agency eligible mortgage-backed security. The absence of even a hint of inflation pressure within the general economy -- together with the Fed's pledge to keep their benchmark short-term rates low for an "extended period of time" -- should collectively prove to be "just-the-thing" to attract aggressive bidding for these three debt instruments. If this assessment proves accurate, next week's solid Treasury auction results will tend to be supportive of the prospects for steady to perhaps fractionally lower mortgage interest rates.
The coming Treasury auctions will likely easily trump the release of the February home sales figures. The Existing Home sales numbers are due at 8:30 a.m. ET next Tuesday and the New Home sales report will follow at 8:30 a.m. ET on Wednesday. The consensus estimate among economists is currently calling for a 1.0% decline in the pace of Existing Home sales while New Home sales are expected to post a barely perceptible improvement of 0.03%. Look for mortgage investors to give this data nothing more than a passing glance.
For those interested in such things - as of last Thursday the Fed has just a little more than $14 billion left to spend of their original $1.25 trillion "war chest" set aside for the direct purchase of mortgage-backed securities. The Fed plans to conclude this program on March 31st as originally scheduled. The widespread worry that the end of the program would produce a sharp rise in mortgage interest rates will likely prove to be grossly overblown. It currently appears there is more than an adequate amount of cash on the sidelines to buy the smaller supply of mortgage-backed securities coming on line. Once mortgage demand picks up later this year the Fed's absence may be felt more acutely - but for the time being the end of their direct mortgage-backed security purchase program will likely pass with little visible evidence on most of your mortgage investors' rate sheets.
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment