There is reason to believe that the price on the government's 7-year notes has been discounted enough since the start of the week that both foreign and domestic investors will be solid buyers at today's $32 billion auction. We have a good set-up underway this morning -- and if it holds through the conclusion of bidding at 1:00 p.m. ET -- this event should have little, if any impact on the current level of mortgage interest rates.
There is a slight chance that a holiday in Japan might reduce demand enough that the yield (interest rate) on these securities will edge higher. If so, a poorly bid 7-year note auction will almost certainly put upward pressure on mortgage interest rates before the market close. While such an event is possible - it does not currently appear to be probable.
Earlier this morning the Labor Department reported the number of workers filing first-time claims for unemployment benefits fell by 11,000 to a seasonally adjusted 448,000 during the week ended April 24th. The data is certainly moving in the right direction - but until the total number of initial jobless claims falls below 400,000 on a week-over-week basis - the sustainability of a recovery in the labor sector will remain inconclusive as far as mortgage investor are concerned - and that is a condition that tends to support steady mortgage interest rates.
Thursday, April 29, 2010
Tuesday, April 27, 2010
Tuesday, April 27, 2010
With a few key strokes the same people who proclaimed subprime mortgage-backed securities to be a low risk credit investment have plunged Portugal into the credit market nightmare that has besieged Greece. Standard & Poor’s cut the rating of Portugal’s sovereign debt by two notches to A-minus in a surprise move earlier this morning saying, the action “reflects our view of the amplified fiscal risks Portugal faces. Under our revised base case economic growth scenario, we expect the Portuguese government could struggle to stabilize its relatively high debt ration over the outlook horizon until 2013.”
As you may or may not know -- Standard & Poor’s is paid by the bond issuer to rate the credit worthiness of the bond issuer’s own debt. This neat little arrangement makes it a lot easier to see how mortgage loans made to people who had absolutely no hope of ever successfully making their payments on a long-term basis could have been securitized and passed off as high grade debt instruments. I find it hard to believe that capital market participants give any debt rating issued under this arrangement so much as a second glance – but they do. Perhaps the credit rating fee Portugal paid this time around was deemed to be too small – or perhaps it was made after the due date (you can’t see me obviously – but as I write this sentence my tongue is in my cheek.) In any case the massive downgrade of Portuguese debt has spawned a stampede of capital fleeing Euro-land for the relative safe harbor of dollar denominate assets like Treasury obligations and mortgage-backed securities. And the timing couldn’t have been better.
Uncle Sam has charged into the credit markets this week looking to borrow a record setting $129 billion in the form of yesterday’s $11 billion 5-year inflation-indexed securities, today’s $44 billion sale of two-year notes followed by $42 billion of 5-year notes tomorrow and concluding on Thursday with the sale of a $32 billion stack of 7-year notes. Yesterday’s 5-year inflation-indexed security sale drew solid demand but at the expense of notably higher yields -- and had been seen as a harbinger of additional upward pressure on the rate of interest Uncle Sam was going to have to pay on the debt he was looking to incur over the balance of the week. Much of that pressure has now been defused thanks to the diligent and timely work of Mr. Standard and Mr. Poor. Whoops – just noticed I’m awfully close to climbing on a soapbox here – so I’ll move on before I get too carried away.
The credit downgrade of Portugal aside – I still think the text and tone of the Fed’s post-meeting statement on tomorrow afternoon still carries the greatest potential to shift the trend trajectory of mortgage interest rates.
In the unlikely event the Fed chooses to tweak the language in their post-meeting statement to reflect their growing confidence in the economic recovery – and/or to provide a wink and a nod to those expecting policymakers to begin nudging their benchmark short-term interest rates higher on a sooner rather than later basis – expect mortgage interest rates to creep yet higher.
On the other hand, should the Fed decide to leave the verbiage in their post meeting statement unchanged -- look for mortgage interest rates to remain near current levels.
As you may or may not know -- Standard & Poor’s is paid by the bond issuer to rate the credit worthiness of the bond issuer’s own debt. This neat little arrangement makes it a lot easier to see how mortgage loans made to people who had absolutely no hope of ever successfully making their payments on a long-term basis could have been securitized and passed off as high grade debt instruments. I find it hard to believe that capital market participants give any debt rating issued under this arrangement so much as a second glance – but they do. Perhaps the credit rating fee Portugal paid this time around was deemed to be too small – or perhaps it was made after the due date (you can’t see me obviously – but as I write this sentence my tongue is in my cheek.) In any case the massive downgrade of Portuguese debt has spawned a stampede of capital fleeing Euro-land for the relative safe harbor of dollar denominate assets like Treasury obligations and mortgage-backed securities. And the timing couldn’t have been better.
Uncle Sam has charged into the credit markets this week looking to borrow a record setting $129 billion in the form of yesterday’s $11 billion 5-year inflation-indexed securities, today’s $44 billion sale of two-year notes followed by $42 billion of 5-year notes tomorrow and concluding on Thursday with the sale of a $32 billion stack of 7-year notes. Yesterday’s 5-year inflation-indexed security sale drew solid demand but at the expense of notably higher yields -- and had been seen as a harbinger of additional upward pressure on the rate of interest Uncle Sam was going to have to pay on the debt he was looking to incur over the balance of the week. Much of that pressure has now been defused thanks to the diligent and timely work of Mr. Standard and Mr. Poor. Whoops – just noticed I’m awfully close to climbing on a soapbox here – so I’ll move on before I get too carried away.
The credit downgrade of Portugal aside – I still think the text and tone of the Fed’s post-meeting statement on tomorrow afternoon still carries the greatest potential to shift the trend trajectory of mortgage interest rates.
In the unlikely event the Fed chooses to tweak the language in their post-meeting statement to reflect their growing confidence in the economic recovery – and/or to provide a wink and a nod to those expecting policymakers to begin nudging their benchmark short-term interest rates higher on a sooner rather than later basis – expect mortgage interest rates to creep yet higher.
On the other hand, should the Fed decide to leave the verbiage in their post meeting statement unchanged -- look for mortgage interest rates to remain near current levels.
Monday, April 26, 2010
Monday, April 26, 2010
Fed Chairman Bernanke together with the other members of the Federal Open Market Committee will gather for a two-day meeting on Tuesday and Wednesday to discuss monetary policy plans for the next six weeks.
The text and tone of the Fed's post-meeting statement on Wednesday afternoon carries the greatest potential to shift the trend trajectory of mortgage interest rates. In the unlikely event the Fed chooses to tweak the language in their post-meeting statement to reflect their growing confidence in the economic recovery - and/or to provide a wink and a nod to those expecting policymakers to begin nudging their benchmark short-term interest rates higher on a sooner rather than later basis - expect mortgage interest rates to creep yet higher. On the other hand, should the Fed decide to leave the verbiage in their post meeting statement unchanged -- look for mortgage interest rates to remain near current levels.
The coming week will be a very active period in the credit markets. Uncle Sam will be conducting a record setting $129 billion four-part debt auction beginning on Monday and concluding on Thursday.
The economic data scheduled for release this week is very light - with the two most significant reports -- the estimate of first-quarter economic activity as measured by Gross Domestic Product and the first-quarter Employment Cost Index - taking center stage on Friday morning. Both guesstimates are expected to be mortgage market neutral.
The text and tone of the Fed's post-meeting statement on Wednesday afternoon carries the greatest potential to shift the trend trajectory of mortgage interest rates. In the unlikely event the Fed chooses to tweak the language in their post-meeting statement to reflect their growing confidence in the economic recovery - and/or to provide a wink and a nod to those expecting policymakers to begin nudging their benchmark short-term interest rates higher on a sooner rather than later basis - expect mortgage interest rates to creep yet higher. On the other hand, should the Fed decide to leave the verbiage in their post meeting statement unchanged -- look for mortgage interest rates to remain near current levels.
The coming week will be a very active period in the credit markets. Uncle Sam will be conducting a record setting $129 billion four-part debt auction beginning on Monday and concluding on Thursday.
The economic data scheduled for release this week is very light - with the two most significant reports -- the estimate of first-quarter economic activity as measured by Gross Domestic Product and the first-quarter Employment Cost Index - taking center stage on Friday morning. Both guesstimates are expected to be mortgage market neutral.
Thursday, April 22, 2010
Thursday, April 22, 2010
The number of workers filing first time jobless claims fell by 24,000 last week while inflation pressures as measured by the producer price index edged up by a stronger-than expected 0.7%.
The largest share of the jump in prices at the producer and wholesale level was generated by an uptick in the price of fruits and vegetables due primarily to rough weather just prior to the harvest. Gasoline prices increased 2.1% after a 7.4% decline in February. Still inflation pressures at the factory and farm gates remain relatively benign. The core producer price index, a value that strips out the more volatile food and energy costs, rose a very modest 0.1%. As long as job and wage growth remain anemic - producers and wholesalers will find it very difficult to push through price increases -- a condition that will tend be to supportive of steady to perhaps fractionally lower mortgage interest rates.
In a separate report the National Association of Realtors said sales of previously owned homes rose 6.8% in March as Americans rushed to take advantage of government tax credit programs for homebuyers before the incentives expire at the end of the month. The Realtors estimate 44% of the March existing home sales were made to buyers qualifying for the $8,000 first-time homebuyer tax credit.
Belief is that the trend trajectory of mortgage interest rates is completely dependent on trading action in the stock markets. As demonstrated by mortgage investors disinterested response to today's barrage of economic reports it will almost certainly be an event that provides the momentum necessary to push mortgage interest rates in one direction or the other -- rather than anything on the balance of this month's economic calendar.
The stock markets have moved to a critical juncture - especially in terms of their ability to influence the trend trajectory of mortgage interest rates.
If the DOW and NASDAQ rally strong enough to close above their previous respective highs of 11154 and 2517 - the upward pressure on mortgage interest rates will intensify considerably.
On the other hand, if both indexes rally but fail to take out their previous highs before turning lower - it will be a very positive development for the prospects of steady to fractionally lower rates ahead. In my judgment this condition will be met and strong support for the prospects of lower mortgage interest rates will develop should the DOW trade below its April 16th low of 10973 and the NASDAQ falls through its April 19th low of 2451.
Until/unless one of the two scenarios outlined above develops look for mortgage interest rates to bounce back and forth in a very narrow range.
The largest share of the jump in prices at the producer and wholesale level was generated by an uptick in the price of fruits and vegetables due primarily to rough weather just prior to the harvest. Gasoline prices increased 2.1% after a 7.4% decline in February. Still inflation pressures at the factory and farm gates remain relatively benign. The core producer price index, a value that strips out the more volatile food and energy costs, rose a very modest 0.1%. As long as job and wage growth remain anemic - producers and wholesalers will find it very difficult to push through price increases -- a condition that will tend be to supportive of steady to perhaps fractionally lower mortgage interest rates.
In a separate report the National Association of Realtors said sales of previously owned homes rose 6.8% in March as Americans rushed to take advantage of government tax credit programs for homebuyers before the incentives expire at the end of the month. The Realtors estimate 44% of the March existing home sales were made to buyers qualifying for the $8,000 first-time homebuyer tax credit.
Belief is that the trend trajectory of mortgage interest rates is completely dependent on trading action in the stock markets. As demonstrated by mortgage investors disinterested response to today's barrage of economic reports it will almost certainly be an event that provides the momentum necessary to push mortgage interest rates in one direction or the other -- rather than anything on the balance of this month's economic calendar.
The stock markets have moved to a critical juncture - especially in terms of their ability to influence the trend trajectory of mortgage interest rates.
If the DOW and NASDAQ rally strong enough to close above their previous respective highs of 11154 and 2517 - the upward pressure on mortgage interest rates will intensify considerably.
On the other hand, if both indexes rally but fail to take out their previous highs before turning lower - it will be a very positive development for the prospects of steady to fractionally lower rates ahead. In my judgment this condition will be met and strong support for the prospects of lower mortgage interest rates will develop should the DOW trade below its April 16th low of 10973 and the NASDAQ falls through its April 19th low of 2451.
Until/unless one of the two scenarios outlined above develops look for mortgage interest rates to bounce back and forth in a very narrow range.
Monday, April 19, 2010
Monday, April 19, 2010
I continue to strongly believe the near-term trend trajectory of mortgage interest rates is now completely dependent on trading action in the stock markets. It will almost certainly be an event that provides the momentum necessary to push mortgage interest rates to lower levels -- rather than anything on the balance of this month's economic calendar.
From a technical perspective it appears to me that both the DOW and the NASDAQ are on the verge of staging a fairly sharp downward correction. In my judgment the DOW will likely continue to slide lower into the 11000 to 10900 range before mounting a little counter-trend rally -- while the NASDAQ will likely bounce off of support in the neighborhood of 2450.
The probabilities are high that the little counter-trend rally that is projected for the DOW and the NASDAQ will occur by Wednesday or Thursday. If so, look for this event to push mortgage interest rates fractionally higher for a few days.
Here's where things get interesting.
If the DOW and NASDAQ rally and close above their previous respective highs of 11154 and 2517 - the upward pressure on mortgage interest rates will intensify considerably.
On the other hand, if both indexes rally but fail to take out their previous highs before turning lower - it will be a very positive development for the prospects of steady to fractionally lower rates ahead.
From a technical perspective it appears to me that both the DOW and the NASDAQ are on the verge of staging a fairly sharp downward correction. In my judgment the DOW will likely continue to slide lower into the 11000 to 10900 range before mounting a little counter-trend rally -- while the NASDAQ will likely bounce off of support in the neighborhood of 2450.
The probabilities are high that the little counter-trend rally that is projected for the DOW and the NASDAQ will occur by Wednesday or Thursday. If so, look for this event to push mortgage interest rates fractionally higher for a few days.
Here's where things get interesting.
If the DOW and NASDAQ rally and close above their previous respective highs of 11154 and 2517 - the upward pressure on mortgage interest rates will intensify considerably.
On the other hand, if both indexes rally but fail to take out their previous highs before turning lower - it will be a very positive development for the prospects of steady to fractionally lower rates ahead.
Friday, April 16, 2010
Friday, April 16, 2010
I hate to rain on anybody's parade -- but the news media sources that are breathlessly reporting that housing starts have soared 1.6% to their highest levels since November 2008 - are, in my opinion, leaving out an important part of the story. The entire surge in the housing starts number was generated by an 18.8% advance in the pace of multi-family construction - while groundbreaking for single-family homes actually dropped 0.9%. March building permits, which give a sense of future home construction, jumped 7.5% higher last month. I don't have immediately available the breakdown of structure type (single family/multi-family) for this particular metric but I strongly suspect multi-family permits make up the majority of this number as well.
There is no avoiding the "hand and glove" connection between the direct dependency new home construction has with job creation. Until the labor sector shows an extended period of sustained growth the total number of new homes under construction will likely remain stuck very near its all-time low of 489,000 units - which it set last month
I continued to strongly believe the near-term trend trajectory of mortgage interest rates is now completely dependent on trading action in the stock markets. In order to move to yet lower levels -- mortgage interest rates will be almost entirely dependent on a boost from events -- rather than anything on the balance of this month's economic calendar.
There is no avoiding the "hand and glove" connection between the direct dependency new home construction has with job creation. Until the labor sector shows an extended period of sustained growth the total number of new homes under construction will likely remain stuck very near its all-time low of 489,000 units - which it set last month
I continued to strongly believe the near-term trend trajectory of mortgage interest rates is now completely dependent on trading action in the stock markets. In order to move to yet lower levels -- mortgage interest rates will be almost entirely dependent on a boost from events -- rather than anything on the balance of this month's economic calendar.
Thursday, April 15, 2010
Thursday, April 15, 2010
TAX D-DAY!!!
Any discussion regarding this morning's initial jobless claims data and the March Industrial Production and Capacity utilization numbers will be a complete waste of your time.
The near-term trend trajectory of mortgage interest rates is now completely dependent on trading action in the stock markets. In order to move to yet lower levels mortgage interest rates will be almost entirely dependent on a boost from events -- rather than anything on the balance of this month's economic calendar.
From a technical perspective it appears that both the DOW and the NASDAQ are on the verge of staging a fairly sharp downward correction. Since Monday specualtion has been that the DOW will probably find it difficult to move much higher than 11,100 while the NASDAQ is likely to run-out-of-steam as it trades in the 2450 to 2470 range. The rally in NASDAQ has proven stronger than anticipated as that index has traded as high as 2517 (earlier this morning). The DOW has traded as high as 11135 (earlier this morning).
If this assessment proves accurate, a significant amount of the capital fleeing deteriorating conditions in the stock markets will almost certainly seek the safety of Treasury debt obligations and mortgage-backed securities - a condition that will in-turn prove supportive of steady to perhaps fractionally lower rates.
Be very, very patient here and pay close attention to price target objectives. The potential for some rather wild price swings in the mortgage market over the course of the next couple of days is high.
Any discussion regarding this morning's initial jobless claims data and the March Industrial Production and Capacity utilization numbers will be a complete waste of your time.
The near-term trend trajectory of mortgage interest rates is now completely dependent on trading action in the stock markets. In order to move to yet lower levels mortgage interest rates will be almost entirely dependent on a boost from events -- rather than anything on the balance of this month's economic calendar.
From a technical perspective it appears that both the DOW and the NASDAQ are on the verge of staging a fairly sharp downward correction. Since Monday specualtion has been that the DOW will probably find it difficult to move much higher than 11,100 while the NASDAQ is likely to run-out-of-steam as it trades in the 2450 to 2470 range. The rally in NASDAQ has proven stronger than anticipated as that index has traded as high as 2517 (earlier this morning). The DOW has traded as high as 11135 (earlier this morning).
If this assessment proves accurate, a significant amount of the capital fleeing deteriorating conditions in the stock markets will almost certainly seek the safety of Treasury debt obligations and mortgage-backed securities - a condition that will in-turn prove supportive of steady to perhaps fractionally lower rates.
Be very, very patient here and pay close attention to price target objectives. The potential for some rather wild price swings in the mortgage market over the course of the next couple of days is high.
Wednesday, April 14, 2010
Wednesday, April 14, 2010
Mortgage investors appear to have largely shrugged off today's battery of macro-economic reports.
Earlier this morning the government reported retail sales were much stronger than had been expected in March while inflation pressures remained subdued.
Total retail sales jumped 1.6% last month as consumers stepped up purchases of everything from vehicles to vegetables. The component of the report that looks at sales excluding vehicles posted a gain of 0.6% -- a performance roughly inline with most analysts' expectations.
In a separate report the Labor Department said their measure of inflation pressures at the consumer level, the Consumer Price Index, rose a very modest 0.1% last month while the core index, a measure excluding the more volatile food and energy components, was unchanged on a month-over-month basis.
The important part of this story, especially in terms of its impact on the trend trajectory of mortgage interest rates, is that there's no inflation in the economy because we still have a ton of slack in the labor sector resulting in stagnant wage growth. As long as that condition prevails, retailers will find it difficult, if not impossible to push price increases through to consumers. Benign consumer inflation pressures tend to be supportive of steady to perhaps fractionally lower mortgage interest rates.
It is Wednesday which means the Mortgage Bankers of America have once again released their measure of mortgage application activity for the prior week. During the week ended April 9th the MBA said overall loan demand slumped 9.6% on a week-over-week basis. Requests for loans to purchase a home slipped 10.5% lower while refinance application traffic was down 9.0%.
From a technical perspective it appears that both the DOW and the NASDAQ are on the verge of staging a fairly sharp downward correction. In many judgments out there the DOW will probably find it difficult to move much higher than 11,100 while the NASDAQ is likely to run-out-of-steam as it trades in the 2450 to 2470 range. If a trend change favoring lower stock prices does not manifest itself this week - in my judgment it will by the week ending May 1st, 2010.
If this assessment proves accurate, a significant amount of the capital fleeing deteriorating conditions in the stock markets will almost certainly seek the safety of Treasury debt obligations and mortgage-backed securities - a condition that will in-turn prove supportive of steady to perhaps fractionally lower rates.
Be very, very patient here and pay close attention to price target objectives. The potential for some rather wild price swings in the mortgage market over the course of the next couple of days is high.
Earlier this morning the government reported retail sales were much stronger than had been expected in March while inflation pressures remained subdued.
Total retail sales jumped 1.6% last month as consumers stepped up purchases of everything from vehicles to vegetables. The component of the report that looks at sales excluding vehicles posted a gain of 0.6% -- a performance roughly inline with most analysts' expectations.
In a separate report the Labor Department said their measure of inflation pressures at the consumer level, the Consumer Price Index, rose a very modest 0.1% last month while the core index, a measure excluding the more volatile food and energy components, was unchanged on a month-over-month basis.
The important part of this story, especially in terms of its impact on the trend trajectory of mortgage interest rates, is that there's no inflation in the economy because we still have a ton of slack in the labor sector resulting in stagnant wage growth. As long as that condition prevails, retailers will find it difficult, if not impossible to push price increases through to consumers. Benign consumer inflation pressures tend to be supportive of steady to perhaps fractionally lower mortgage interest rates.
It is Wednesday which means the Mortgage Bankers of America have once again released their measure of mortgage application activity for the prior week. During the week ended April 9th the MBA said overall loan demand slumped 9.6% on a week-over-week basis. Requests for loans to purchase a home slipped 10.5% lower while refinance application traffic was down 9.0%.
From a technical perspective it appears that both the DOW and the NASDAQ are on the verge of staging a fairly sharp downward correction. In many judgments out there the DOW will probably find it difficult to move much higher than 11,100 while the NASDAQ is likely to run-out-of-steam as it trades in the 2450 to 2470 range. If a trend change favoring lower stock prices does not manifest itself this week - in my judgment it will by the week ending May 1st, 2010.
If this assessment proves accurate, a significant amount of the capital fleeing deteriorating conditions in the stock markets will almost certainly seek the safety of Treasury debt obligations and mortgage-backed securities - a condition that will in-turn prove supportive of steady to perhaps fractionally lower rates.
Be very, very patient here and pay close attention to price target objectives. The potential for some rather wild price swings in the mortgage market over the course of the next couple of days is high.
Tuesday, April 13, 2010
Tuesday, April 13, 2010
Different day - same story.
This week's round of macro-economic data stands a very good chance of being completely overshadowed by trading action in the stock markets.
First-quarter earnings "season" kicked-off yesterday after the stock market closed and will accelerate in intensity over the next couple of weeks. Stock investors have already priced in solid earnings reports for the majority of Corporate America - so if the actual earnings match or fall short of expectations -- investors will likely register their disappointment by pushing stock prices lower.
From a technical perspective it appears that both the DOW and the NASDAQ are on the verge of staging a fairly sharp downward correction. In my judgment the DOW will probably find it difficult to move much higher than 11,100 while the NASDAQ is likely to run-out-of-steam as it trades in the 2450 to 2470 range. If a trend change favoring lower stock prices does not manifest itself this week - it will by the week ending May 1st, 2010.
If this assessment proves accurate, a significant amount of the capital fleeing deteriorating conditions in the stock markets will almost certainly seek the safety of Treasury debt obligations and mortgage-backed securities - a condition that will in-turn prove supportive of steady to perhaps fractionally lower rates.
Be very, very patient here and pay close attention to price target objectives. The potential for some rather wild price swings in the mortgage market over the course of the next couple of days is high.
This week's round of macro-economic data stands a very good chance of being completely overshadowed by trading action in the stock markets.
First-quarter earnings "season" kicked-off yesterday after the stock market closed and will accelerate in intensity over the next couple of weeks. Stock investors have already priced in solid earnings reports for the majority of Corporate America - so if the actual earnings match or fall short of expectations -- investors will likely register their disappointment by pushing stock prices lower.
From a technical perspective it appears that both the DOW and the NASDAQ are on the verge of staging a fairly sharp downward correction. In my judgment the DOW will probably find it difficult to move much higher than 11,100 while the NASDAQ is likely to run-out-of-steam as it trades in the 2450 to 2470 range. If a trend change favoring lower stock prices does not manifest itself this week - it will by the week ending May 1st, 2010.
If this assessment proves accurate, a significant amount of the capital fleeing deteriorating conditions in the stock markets will almost certainly seek the safety of Treasury debt obligations and mortgage-backed securities - a condition that will in-turn prove supportive of steady to perhaps fractionally lower rates.
Be very, very patient here and pay close attention to price target objectives. The potential for some rather wild price swings in the mortgage market over the course of the next couple of days is high.
Monday, April 5, 2010
Monday April 5, 2010
OPENING DAY!! GO REDS!!
Uncle Sam will be splashing around in the credit markets this week looking to borrow $82 billion through a four-part debt auction process. The buying appetite the global investment community demonstrates for this week's offerings will sharply influence the trend trajectory of mortgage interest rates over the course of the next five trading session and beyond.
The debt auction series will kick off with the sale of $8 billion worth of 10-year inflation-indexed notes today, followed by tomorrow's $40 billion 3-year note sale, $21 billion of 10-year notes on Wednesday and concluding on Thursday with the sale of $13 billion of 30-year bonds. The probabilities are strong that the price on each of these securities has fallen dramatically enough over the past two weeks that global investors will find them hard to pass up. If so, these events will likely prove to be at least mortgage market neutral.
In other news of the day -- the Institute of Supply Management said its service sector index jumped to a reading of 55.0% in March from a revised 53.0% mark in February. It was the fastest pace of growth in this sector of the economy in nearly four years.
In a separate report the National Association of Realtors said that its Pending Home Sales index, a metric based on contracts signed in February, rose 8.2%, marking its second-biggest gain on record and the largest since October 2001. The Realtors group indicated the sharp rise in home buying activity was largely attributable to homebuyers scrambling to take advantage of the soon-to-expire tax credit programs offered by the government.
Uncle Sam will be splashing around in the credit markets this week looking to borrow $82 billion through a four-part debt auction process. The buying appetite the global investment community demonstrates for this week's offerings will sharply influence the trend trajectory of mortgage interest rates over the course of the next five trading session and beyond.
The debt auction series will kick off with the sale of $8 billion worth of 10-year inflation-indexed notes today, followed by tomorrow's $40 billion 3-year note sale, $21 billion of 10-year notes on Wednesday and concluding on Thursday with the sale of $13 billion of 30-year bonds. The probabilities are strong that the price on each of these securities has fallen dramatically enough over the past two weeks that global investors will find them hard to pass up. If so, these events will likely prove to be at least mortgage market neutral.
In other news of the day -- the Institute of Supply Management said its service sector index jumped to a reading of 55.0% in March from a revised 53.0% mark in February. It was the fastest pace of growth in this sector of the economy in nearly four years.
In a separate report the National Association of Realtors said that its Pending Home Sales index, a metric based on contracts signed in February, rose 8.2%, marking its second-biggest gain on record and the largest since October 2001. The Realtors group indicated the sharp rise in home buying activity was largely attributable to homebuyers scrambling to take advantage of the soon-to-expire tax credit programs offered by the government.
Friday, April 2, 2010
Thursday, April 1, 2010
All the bets are on the table and there is nothing left to do but wait for the dealer to turn over the last card - which in this case happens to be the Labor Department's nonfarm payroll report - scheduled for release at 8:30 a.m. ET, tomorrow morning.
Mortgage investors have completely "priced-in" expectations that March payrolls have grown by at least 190,000 while the jobless rate continues to hover at 9.7%. If the actual numbers match or exceed this expectation, look for the stock market to rally at the expense of fractionally higher mortgage interest rates.
On the other hand, should the actual headline payroll figure post a reading of 130,000 or less -- and/or should the national jobless rate climb to 9.8% or higher - there is a strong chance selling pressure in the equity markets will develop that will in-turn produce a solid flow of "flight-to-quality" capital into the credit markets sufficient enough to be supportive of steady to fractionally lower rates. While such an outcome is certainly possible -- there is nothing in terms of current macro-economic data to indicate such a result is probable.
This morning's stronger than expected Institute of Supply Management Index created some additional selling pressure in an already nervous mortgage market. Activity levels in the manufacturing sector expanded to a reading of 59.6% from February's 56.5% mark. The 3.1% month-over-month improvement puts the index at its highest since 2004 and is a strong indication that the business-led recovery is still alive and well.
In a separate report this morning the Labor Department said 6,000 fewer American workers cued-up in line to file first time jobless benefit claims during the week ended March 27th. This was the second straight drop in initial weekly jobless claims, consistent with continued slow labor market progress. Taking a broader view of the strain in the labor market the government reported enrollment in extended benefit programs decreased by 3,000 while enrollment in the Emergency Unemployment Compensation program rose by 267,000 during the week ended March 13, the latest period for which data is available. The underlying story here is that those participating in these special benefit programs have been without work for a long time - and are getting closer to running out of benefit eligibility with each passing week. The longer the hiring activity takes to improve, the more difficult the current pace of overall economic recovery will be to sustain. Watch this developing story closely and will update once it becomes a more significant factor in terms of mortgage interest rate trends.
Mortgage investors have completely "priced-in" expectations that March payrolls have grown by at least 190,000 while the jobless rate continues to hover at 9.7%. If the actual numbers match or exceed this expectation, look for the stock market to rally at the expense of fractionally higher mortgage interest rates.
On the other hand, should the actual headline payroll figure post a reading of 130,000 or less -- and/or should the national jobless rate climb to 9.8% or higher - there is a strong chance selling pressure in the equity markets will develop that will in-turn produce a solid flow of "flight-to-quality" capital into the credit markets sufficient enough to be supportive of steady to fractionally lower rates. While such an outcome is certainly possible -- there is nothing in terms of current macro-economic data to indicate such a result is probable.
This morning's stronger than expected Institute of Supply Management Index created some additional selling pressure in an already nervous mortgage market. Activity levels in the manufacturing sector expanded to a reading of 59.6% from February's 56.5% mark. The 3.1% month-over-month improvement puts the index at its highest since 2004 and is a strong indication that the business-led recovery is still alive and well.
In a separate report this morning the Labor Department said 6,000 fewer American workers cued-up in line to file first time jobless benefit claims during the week ended March 27th. This was the second straight drop in initial weekly jobless claims, consistent with continued slow labor market progress. Taking a broader view of the strain in the labor market the government reported enrollment in extended benefit programs decreased by 3,000 while enrollment in the Emergency Unemployment Compensation program rose by 267,000 during the week ended March 13, the latest period for which data is available. The underlying story here is that those participating in these special benefit programs have been without work for a long time - and are getting closer to running out of benefit eligibility with each passing week. The longer the hiring activity takes to improve, the more difficult the current pace of overall economic recovery will be to sustain. Watch this developing story closely and will update once it becomes a more significant factor in terms of mortgage interest rate trends.
Wednesday, March 31, 2010
In classic style Friday's highly anticipated March nonfarm payroll report continues to dominate trading action in the mortgage market once again today.
· The mortgage market has currently priced in completely expectations that March payrolls grew by roughly 190,000 while the jobless rate remained steady at 9.7%. If the actual numbers match or exceed this expectation look for the stock market to rally at the expense of fractionally higher mortgage interest rates.
· On the other hand, should the actual headline payroll figure post a reading of 130,000 or less -- and/or should the national jobless rate climb to 9.8% or higher - there is a strong chance selling pressure in the equity markets will develop that will in turn produce a solid flow of "flight-to-quality" capital into the credit markets sufficient enough to be supportive of steady to fractionally lower rates. While such an outcome is certainly possible -- there is nothing in terms of current macro-economic data to indicate such a result is probable.
· In a nutshell -a softer-than-expected jobs report will likely push prices higher and mortgage interest rates lower to a greater degree -- than will a matching "miss" to the strong side of the employment report push prices down and rates higher.
In other news of the day the Mortgage Bankers of America reported mortgage application rose for the first time in three weeks as demand for home purchase loans reached the highest level since October. The MBA said its seasonally adjusted index of all mortgage applications increased 1.3% during the week ended March 26th. Purchase applications rose a solid 6.8% while refinance requests were off a slight 1.3%.
WORTH NOTING: The Federal Reserve will conclude their 1.25 trillion direct mortgage-backed security purchase today. The program was initiated in January 2009 in an effort to bring down mortgage interest rates and to stimulate the battered housing sector. By all accounts the program met its intended objectives.
There has been considerable handwringing in and out of the mortgage lending community regarding what the end of this program will mean to the mortgage industry, to the housing sector, and to consumers. The original fear was that once the Fed winds up their direct commitment to hold mortgage rates low the interest rate environment for mortgage loans would balloon sharply higher. Those early fears now seem to be exaggerated for three primary reasons;
1. There are few competing "AAA" rated assets in this investment vehicle class. Pent-up demand is strong among private sector investors who have been "elbowed" out of the mortgage market by the Fed for the past year. Persistently low cost of funds for banks has many eager to stock-up on current vintage mortgage-backed securities as well.
2. With demand current so high -- there is a shortage of supply. The sharp reduction in production volumes unleashed on the origination side of the mortgage banking business by the worst economic conditions in 30-years has, by extension, sharply reduced the supply of mortgage-backed securities.
3. A $200 billion delinquent loan buyout announced by Fannie Mae and Freddie Mac in February is expected to put about $140 billion of cash into private investors' hands in the next three to four months - with most of those funds expected to flow back into the single-family mortgage market.
· The mortgage market has currently priced in completely expectations that March payrolls grew by roughly 190,000 while the jobless rate remained steady at 9.7%. If the actual numbers match or exceed this expectation look for the stock market to rally at the expense of fractionally higher mortgage interest rates.
· On the other hand, should the actual headline payroll figure post a reading of 130,000 or less -- and/or should the national jobless rate climb to 9.8% or higher - there is a strong chance selling pressure in the equity markets will develop that will in turn produce a solid flow of "flight-to-quality" capital into the credit markets sufficient enough to be supportive of steady to fractionally lower rates. While such an outcome is certainly possible -- there is nothing in terms of current macro-economic data to indicate such a result is probable.
· In a nutshell -a softer-than-expected jobs report will likely push prices higher and mortgage interest rates lower to a greater degree -- than will a matching "miss" to the strong side of the employment report push prices down and rates higher.
In other news of the day the Mortgage Bankers of America reported mortgage application rose for the first time in three weeks as demand for home purchase loans reached the highest level since October. The MBA said its seasonally adjusted index of all mortgage applications increased 1.3% during the week ended March 26th. Purchase applications rose a solid 6.8% while refinance requests were off a slight 1.3%.
WORTH NOTING: The Federal Reserve will conclude their 1.25 trillion direct mortgage-backed security purchase today. The program was initiated in January 2009 in an effort to bring down mortgage interest rates and to stimulate the battered housing sector. By all accounts the program met its intended objectives.
There has been considerable handwringing in and out of the mortgage lending community regarding what the end of this program will mean to the mortgage industry, to the housing sector, and to consumers. The original fear was that once the Fed winds up their direct commitment to hold mortgage rates low the interest rate environment for mortgage loans would balloon sharply higher. Those early fears now seem to be exaggerated for three primary reasons;
1. There are few competing "AAA" rated assets in this investment vehicle class. Pent-up demand is strong among private sector investors who have been "elbowed" out of the mortgage market by the Fed for the past year. Persistently low cost of funds for banks has many eager to stock-up on current vintage mortgage-backed securities as well.
2. With demand current so high -- there is a shortage of supply. The sharp reduction in production volumes unleashed on the origination side of the mortgage banking business by the worst economic conditions in 30-years has, by extension, sharply reduced the supply of mortgage-backed securities.
3. A $200 billion delinquent loan buyout announced by Fannie Mae and Freddie Mac in February is expected to put about $140 billion of cash into private investors' hands in the next three to four months - with most of those funds expected to flow back into the single-family mortgage market.
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