The mortgage market is simply treading water today as investors await Friday's August nonfarm payroll report.
This morning's August consumer confidence report showed a modest improvement over the five-month low set last month and drew little more than a passing glance from market participants. The modest rise in consumer's attitudes was really nothing to get excited about since it amounted to nothing more than a very small upswing from a very dismal month earlier level.
Investors fretting over the pace of the economic recovery will be closely attuned to any tidbit of insight that may be available in the minutes of the Federal Open Market Committee's August 10th meeting (scheduled for release at 2:00 p.m. today). Though the document will be picked apart on word-by-word basis, investors are unlikely to find anything that will provide them with an improved perspective on the state of the economy or an indication of a meaningful shift in the Fed's current monetary policy strategy.
Tuesday, August 31, 2010
Monday, August 30, 2010
Monday, August 30, 2010
The Commerce Department reported this morning that income and spending grew slightly in July while inflation pressures at the consumer level were benign.
Personal incomes grew by 0.2% last month while spending rose by 0.4%. The Fed's preferred measure of consumer price inflation, the personal consumption expenditure index, a separate component of the income and spending report, rose 0.1% in July and was up a meager 1.4% on a year-over-year basis. With personal savings continuing to hover near 6.0%, it is clear consumers are focusing on getting their finances in order rather than aggressively increasing their spending. Rising personal savings suggests to many analysts the engine that drives more than 70% of our domestic economic activity is likely to perform below its potential for months yet to come.
Against such an economic backdrop stocks will likely continue to slump as capital flows from riskier asset classes into the safest investment vehicles available. The good news here is that for the time-being, dollar denominated assets like Treasury obligations and mortgage-backed securities are about the-only-game-in-town that perfectly fits the "safe haven" requirement for both domestic and global investors. As long as this condition prevails it will tend to support the prospects for steady to perhaps fractionally lower mortgage interest rates.
Personal incomes grew by 0.2% last month while spending rose by 0.4%. The Fed's preferred measure of consumer price inflation, the personal consumption expenditure index, a separate component of the income and spending report, rose 0.1% in July and was up a meager 1.4% on a year-over-year basis. With personal savings continuing to hover near 6.0%, it is clear consumers are focusing on getting their finances in order rather than aggressively increasing their spending. Rising personal savings suggests to many analysts the engine that drives more than 70% of our domestic economic activity is likely to perform below its potential for months yet to come.
Against such an economic backdrop stocks will likely continue to slump as capital flows from riskier asset classes into the safest investment vehicles available. The good news here is that for the time-being, dollar denominated assets like Treasury obligations and mortgage-backed securities are about the-only-game-in-town that perfectly fits the "safe haven" requirement for both domestic and global investors. As long as this condition prevails it will tend to support the prospects for steady to perhaps fractionally lower mortgage interest rates.
Friday, August 27, 2010
Friday, August 27, 2010
The mortgage market is being pounded by profit-taking this morning as investors react to news indicating overall economic growth in the second-quarter was not as weak as many had anticipated. Comments from Fed Chairman Bernanke indicating the Fed is prepared to take additional action if need be to restart the nation's economic engines simply added a little fuel to the fire.
The current mindset among mortgage investors toward today's revised second-quarter Gross Domestic Product appears to revolve around the idea that while the component numbers weren't particularly good - they were at least better than most had expected. Real GDP increased at an annualized rate of 1.6% in the second quarter - revised down from first estimates for growth of 2.4% -- but ahead of the consensus forecast calling for a headline GDP number of 1.4%.
The stir the revised second-quarter GDP numbers are creating in the mortgage market will probably fade pretty quickly as calmer, cooler heads point out that until labor market weakness shows signs of improving; overall economic growth will remain desperately anemic. But that is a story for another day.
Looking ahead to next week every scheduled report - from Monday's July Personal Income and Spending data through the late-week release of the Institute of Supply Management's Manufacturing and Service Sector Index values will take a backseat to the August Nonfarm Payroll figures scheduled to hit the newswires Friday morning at 8:30 a.m. ET.
Mortgage investors have already priced in expectations for a headline nonfarm payroll decline of 100,000 - a number likely sufficient to nudge the nation's unemployment rate up to 9.6%. Numbers that match or fall below the consensus estimate for these two major components of the August jobs report will tend to support steady to perhaps fractionally higher mortgage interest rates. Should one or both components exceed the consensus estimate -- look for mortgage investors to respond by pressing note rates a bit lower.
The current mindset among mortgage investors toward today's revised second-quarter Gross Domestic Product appears to revolve around the idea that while the component numbers weren't particularly good - they were at least better than most had expected. Real GDP increased at an annualized rate of 1.6% in the second quarter - revised down from first estimates for growth of 2.4% -- but ahead of the consensus forecast calling for a headline GDP number of 1.4%.
The stir the revised second-quarter GDP numbers are creating in the mortgage market will probably fade pretty quickly as calmer, cooler heads point out that until labor market weakness shows signs of improving; overall economic growth will remain desperately anemic. But that is a story for another day.
Looking ahead to next week every scheduled report - from Monday's July Personal Income and Spending data through the late-week release of the Institute of Supply Management's Manufacturing and Service Sector Index values will take a backseat to the August Nonfarm Payroll figures scheduled to hit the newswires Friday morning at 8:30 a.m. ET.
Mortgage investors have already priced in expectations for a headline nonfarm payroll decline of 100,000 - a number likely sufficient to nudge the nation's unemployment rate up to 9.6%. Numbers that match or fall below the consensus estimate for these two major components of the August jobs report will tend to support steady to perhaps fractionally higher mortgage interest rates. Should one or both components exceed the consensus estimate -- look for mortgage investors to respond by pressing note rates a bit lower.
Thursday, August 26, 2010
Thursday, August 26, 2010
Mortgage investors largely shrugged off this morning's data from the Labor Department showing the number of American workers filing for first-time jobless benefits fell by 31,000 during the week ended August 21st.
This freshly updated story from the labor sector has done nothing to resolve the debate currently raging among market participants over whether mortgage interest rates have moved to unsupportable levels - or whether the steady drumbeat of poor economic data and the seemingly insatiable appetite for safe-haven debt from domestic and foreign long-term investors will be strong enough to push home financing rates to astonishing new lows. The jobless claims data series of late has certainly proven mixed enough to support both sides of the argument.
Uncle Sam will round out this week's four-part borrowing spree with the sale of a $29 billion stack of 7-year notes this afternoon. Tuesday's 2-year note offering and Wednesday's 5-year note offering were each sold at record low yields, and there is little reason to expect demand will not be solid at today's auction as well.
This freshly updated story from the labor sector has done nothing to resolve the debate currently raging among market participants over whether mortgage interest rates have moved to unsupportable levels - or whether the steady drumbeat of poor economic data and the seemingly insatiable appetite for safe-haven debt from domestic and foreign long-term investors will be strong enough to push home financing rates to astonishing new lows. The jobless claims data series of late has certainly proven mixed enough to support both sides of the argument.
Uncle Sam will round out this week's four-part borrowing spree with the sale of a $29 billion stack of 7-year notes this afternoon. Tuesday's 2-year note offering and Wednesday's 5-year note offering were each sold at record low yields, and there is little reason to expect demand will not be solid at today's auction as well.
Wednesday, August 25, 2010
Wednesday, August 25, 2010
To no one's surprise -- other than a few breathless television commentators -- new home sales in July fell sharply lower, posting a month-over-month decline of 12.4%. Following yesterday's massive swoon in the pace of the July existing home sales most investors had already priced-in expectations for a puny new home sales performance. Until/unless the pace of job creation improves -- demand for housing will remain weak - even in the face of historically low mortgage interest rates.
The July new home sales report fits like a glove with the latest loan application data released today by the Mortgage Bankers Association of America. According to the MBA, overall mortgage loan application activity increased 4.9% during the week ended August 20th. Refinancing activity was up 5.7% while requests for purchase money posted a frail gain of 0.6%. Refinance applications accounted for 82.4% of all mortgage loan requests and they represented 82% of the prospective loan volume.
Earlier this morning the Commerce Department reported orders for long lasting (three-years or more) manufactured goods slumped notably last month. Durable goods orders are a leading indicator of manufacturing activity. The July data shows that the main engine driving the economy's recovery from the worst downturn since the great Depression is starting to sputter.
The scrawny durable goods report and the outright weakness represented in the new home sale data sent global and domestic fixed-income investors diving in droves into the relative safe-haven of Treasury obligations and mortgage-backed securities. Slowing economic growth means there will be little inflationary threat to drive the price of these assets lower - which certainly makes them an appealing place to store cash as the deteriorating domestic and global economy eliminates investment opportunities elsewhere.
Against that credit market background Uncle Sam will once again be conducting a debt auction - this time looking to borrow $36 billion in the form of 5-year notes. Today's five-year note auction may not be a blockbuster, but it will likely draw decent demand. This event is unlikely to create much, if any reaction in the mortgage market.
The July new home sales report fits like a glove with the latest loan application data released today by the Mortgage Bankers Association of America. According to the MBA, overall mortgage loan application activity increased 4.9% during the week ended August 20th. Refinancing activity was up 5.7% while requests for purchase money posted a frail gain of 0.6%. Refinance applications accounted for 82.4% of all mortgage loan requests and they represented 82% of the prospective loan volume.
Earlier this morning the Commerce Department reported orders for long lasting (three-years or more) manufactured goods slumped notably last month. Durable goods orders are a leading indicator of manufacturing activity. The July data shows that the main engine driving the economy's recovery from the worst downturn since the great Depression is starting to sputter.
The scrawny durable goods report and the outright weakness represented in the new home sale data sent global and domestic fixed-income investors diving in droves into the relative safe-haven of Treasury obligations and mortgage-backed securities. Slowing economic growth means there will be little inflationary threat to drive the price of these assets lower - which certainly makes them an appealing place to store cash as the deteriorating domestic and global economy eliminates investment opportunities elsewhere.
Against that credit market background Uncle Sam will once again be conducting a debt auction - this time looking to borrow $36 billion in the form of 5-year notes. Today's five-year note auction may not be a blockbuster, but it will likely draw decent demand. This event is unlikely to create much, if any reaction in the mortgage market.
Tuesday, August 24, 2010
Tuesday, August 24, 2010
The National Association of Realtors reported this morning that sales of existing homes fell a sharper-than-expected 27.2% in July. As Celia Chen, analyst for Moody's DismalScientist publication, points out - before panicking it is worthwhile to note that the three-month moving average of home sales is about on par with sales in the first half of the year.
In large part it is the government's earlier homebuyer tax credit program that continues to distort the month-over-month home sales data. After surging to a two-and-a-half year high last November, the month of the tax credit's initial expiration, demand dropped for three straight months. Demand then recovered in March and April, which was the deadline for signing contracts, before starting on its downward trajectory once again.
Smoothing out the impact of the tax credit, it is evident home sales are trending upward at a snail's pace after hitting a bottom at the first of the year. The bad news is the improvement is almost imperceptible, even though mortgage interest rates are at record low levels and home prices are at their lowest in years. This morning's report highlights the simple fact that demand for single family homes is far more strongly influenced by job creation - than the point at which mortgage interest rates happen to be at any given time. It is probably apparent to even a casual observer of the recent home sales news that if one intends to support the dream of American homeownership -- the primary focus must be on job creation and restoring consumer confidence - while mortgage interest rates can be left to seek their natural level.
Hmmm - I wonder if anybody in Washington is listening to the very clear message the housing sector is broadcasting on every available channel. I think I know the answer to my question -- but one can always hope.
Uncle Sam will be in the credit market again today looking to borrow $37 billion in the form of 2-year notes. The yield on this security is hovering very near record lows, and there are some analysts suggesting investors may think twice before jumping in at record high prices. It appears to me that outside of corporate bonds and their attendant credit risks - there are few alternatives that offer the safe-haven to be found in Treasury obligations and agency eligible mortgage-backed securities. Today's two-year note auction may not be a blockbuster, but it will likely draw decent demand. If my assessment proves accurate, this event is unlikely to create much, if any reaction in the mortgage market. The auction will conclude at 1:00 p.m. ET
In large part it is the government's earlier homebuyer tax credit program that continues to distort the month-over-month home sales data. After surging to a two-and-a-half year high last November, the month of the tax credit's initial expiration, demand dropped for three straight months. Demand then recovered in March and April, which was the deadline for signing contracts, before starting on its downward trajectory once again.
Smoothing out the impact of the tax credit, it is evident home sales are trending upward at a snail's pace after hitting a bottom at the first of the year. The bad news is the improvement is almost imperceptible, even though mortgage interest rates are at record low levels and home prices are at their lowest in years. This morning's report highlights the simple fact that demand for single family homes is far more strongly influenced by job creation - than the point at which mortgage interest rates happen to be at any given time. It is probably apparent to even a casual observer of the recent home sales news that if one intends to support the dream of American homeownership -- the primary focus must be on job creation and restoring consumer confidence - while mortgage interest rates can be left to seek their natural level.
Hmmm - I wonder if anybody in Washington is listening to the very clear message the housing sector is broadcasting on every available channel. I think I know the answer to my question -- but one can always hope.
Uncle Sam will be in the credit market again today looking to borrow $37 billion in the form of 2-year notes. The yield on this security is hovering very near record lows, and there are some analysts suggesting investors may think twice before jumping in at record high prices. It appears to me that outside of corporate bonds and their attendant credit risks - there are few alternatives that offer the safe-haven to be found in Treasury obligations and agency eligible mortgage-backed securities. Today's two-year note auction may not be a blockbuster, but it will likely draw decent demand. If my assessment proves accurate, this event is unlikely to create much, if any reaction in the mortgage market. The auction will conclude at 1:00 p.m. ET
Monday, August 23, 2010
Monday, August 23, 2010
Mortgage investors will likely remain in their foxholes with their helmets on and their heads down as Uncle Sam dominates the credit markets with a four-part borrowing spree over the course of the first four-days of this week. The action starts with today's sale of $7 billion 30-year inflation indexed bonds followed by $37 billion of 2-year notes tomorrow, $36 billion of 5-year notes on Wednesday and $37 billion of 7-year notes on Thursday.
Treasury obligations of every description have been rallying powerfully since mid-April as the likelihood of an economic recovery from the deepest recession in decades continues to fade. As the economy cools so does the threat of inflation - a condition which simultaneously reduces the availability of alternatives for investors looking for safe returns. The "so what" factor here is significant.
Investors' appetite for dollar denominated assets like Treasury obligations and mortgage-backed securities will be sharply tested this week since prices for these debt offerings are either trading at, or very near all-time their historical highs.
While the auctions are expected to draw decent demand - it is highly likely the majority of mortgage investors will take a defensive "wait-and-see" approach before giving consideration to pushing rates noticeably lower from current levels. Investors who have completed more than a week in the "biz" tend to be collectively and individually aware that markets have a nasty habit of almost always crashing down -- and seldom do they ever crash up.
Treasury obligations of every description have been rallying powerfully since mid-April as the likelihood of an economic recovery from the deepest recession in decades continues to fade. As the economy cools so does the threat of inflation - a condition which simultaneously reduces the availability of alternatives for investors looking for safe returns. The "so what" factor here is significant.
Investors' appetite for dollar denominated assets like Treasury obligations and mortgage-backed securities will be sharply tested this week since prices for these debt offerings are either trading at, or very near all-time their historical highs.
While the auctions are expected to draw decent demand - it is highly likely the majority of mortgage investors will take a defensive "wait-and-see" approach before giving consideration to pushing rates noticeably lower from current levels. Investors who have completed more than a week in the "biz" tend to be collectively and individually aware that markets have a nasty habit of almost always crashing down -- and seldom do they ever crash up.
Sunday, August 22, 2010
SUNDAY, August 22, 2010
To Preview the upcoming economic week and how it may affect mortgage rates:
Mortgage investors will likely move into a defensive position this week opting to take a "wait-and-see" approach before giving consideration to pushing rates noticeably lower from current levels. There is a huge amount of "bad" economic news already priced into the market. If the home sales data and/or the revised GDP figure prove stronger-than-expected – look for investors to respond by pushing rates higher.
REPORTS DUE OUT:
Mon. Aug. 23, 1:00 p.m. ET Treasury sells $7 billion of 30-year inflation indexed securities The "adjustable" feature of these securities will likely make them very attractive to the global investment community. If so, this auction will likely be a "non-event" in terms of the mortgage market.
__________
Tues. Aug. 24, 10:00 a.m. ET July Existing Home Sales -10.0% Mortgage investors are expecting a dismal number here and they are not likely going to be disappointed. If so, this data will likely favor steady mortgage interest rates.
Tues. Aug. 24, 1:00 p.m. ET Treasury sells $37 billion of 2-year notes The relative short maturity of this security should be attractive to a large number of investors. If so, this event will likely have little, if any meaningful impact on the direction of mortgage rates.
__________
Wed. Aug. 25, 8:30 a.m. ET July Durable Goods Orders Ex. Transportation +3.0% vs. last -1.2% +0.5% vs. last -0.9% Only in the off-chance the actual numbers exceed the consensus estimate will this report exert any notable upward influence on the direction of mortgage interest rates.
Wed. Aug. 25, 10:00 a.m. ET July New Home Sales +3.0% Sharp declines in the weekly mortgage purchase application index strongly suggest demand for new homes remains sluggish -- a condition that will surprise no one. This data will likely exert little, if any influence on the direction of mortgage interest rates today.
Wed. Aug. 25, 1:00 p.m. ET Treasury sells $36 billion of 5-year notes This auction will likely be a non-event as far as mortgage interest rates are concerned. But pay attention here. A poorly bid 5-year note auction will probably create a "snowball-effect" that pushes both government debt yields and mortgage interest rates higher as the week progresses. The chances of a mortgage unfriendly outcome today are small – but not so small this event can be completely ignored;
__________
Thurs. Aug. 26, 8:30 a.m. ET Initial jobless claims for the week ended 8/21 Down 10,000 to 490,000 Until the total number of initial jobless claims falls below 400,000 on a week-over-week basis -- this data will tend to support steady mortgage interest rates.
Thurs. Aug. 26, 1:00 p.m. ET Treasury sells $27 billion of 7-year notes Only in the unlikely event the investment community-atlarge believes the worst of the recession is behind us will the yield of this security climb at today’s auction. If the yield on this offering rises -- it is highly likely mortgage interest rates will begin to climb higher as well. I don’t think there is much to worry about here – but give the auction results at least a passing glance.
__________
Fri. Aug. 27, 8:30 a.m. ET Revised Q2 Gross Domestic Product +1.4% vs. last 2.4% Recent data points to a smaller contribution to the nation’s economic growth from inventory rebuilding and foreign trade is creating a larger drag than previously expected. The economy’s second-quarter growth rate is almost certain to be revised lower – a condition that is already well priced into the mortgage market.
Fri. Aug. 27, 11:00 a.m. ET Fed Chairman speaks at economic symposium in Jackson Hole Wyoming This is event is the "wildcard" of the week. There is a chance Fed Chairman Bernanke may use this opportunity to put market participants on notice that the Fed will soon begin to take more aggressive action in terms of its stimulus programs. If so, look for this event to be supportive of steady to perhaps fractionally lower rates.
Mortgage investors will likely move into a defensive position this week opting to take a "wait-and-see" approach before giving consideration to pushing rates noticeably lower from current levels. There is a huge amount of "bad" economic news already priced into the market. If the home sales data and/or the revised GDP figure prove stronger-than-expected – look for investors to respond by pushing rates higher.
REPORTS DUE OUT:
Mon. Aug. 23, 1:00 p.m. ET Treasury sells $7 billion of 30-year inflation indexed securities The "adjustable" feature of these securities will likely make them very attractive to the global investment community. If so, this auction will likely be a "non-event" in terms of the mortgage market.
__________
Tues. Aug. 24, 10:00 a.m. ET July Existing Home Sales -10.0% Mortgage investors are expecting a dismal number here and they are not likely going to be disappointed. If so, this data will likely favor steady mortgage interest rates.
Tues. Aug. 24, 1:00 p.m. ET Treasury sells $37 billion of 2-year notes The relative short maturity of this security should be attractive to a large number of investors. If so, this event will likely have little, if any meaningful impact on the direction of mortgage rates.
__________
Wed. Aug. 25, 8:30 a.m. ET July Durable Goods Orders Ex. Transportation +3.0% vs. last -1.2% +0.5% vs. last -0.9% Only in the off-chance the actual numbers exceed the consensus estimate will this report exert any notable upward influence on the direction of mortgage interest rates.
Wed. Aug. 25, 10:00 a.m. ET July New Home Sales +3.0% Sharp declines in the weekly mortgage purchase application index strongly suggest demand for new homes remains sluggish -- a condition that will surprise no one. This data will likely exert little, if any influence on the direction of mortgage interest rates today.
Wed. Aug. 25, 1:00 p.m. ET Treasury sells $36 billion of 5-year notes This auction will likely be a non-event as far as mortgage interest rates are concerned. But pay attention here. A poorly bid 5-year note auction will probably create a "snowball-effect" that pushes both government debt yields and mortgage interest rates higher as the week progresses. The chances of a mortgage unfriendly outcome today are small – but not so small this event can be completely ignored;
__________
Thurs. Aug. 26, 8:30 a.m. ET Initial jobless claims for the week ended 8/21 Down 10,000 to 490,000 Until the total number of initial jobless claims falls below 400,000 on a week-over-week basis -- this data will tend to support steady mortgage interest rates.
Thurs. Aug. 26, 1:00 p.m. ET Treasury sells $27 billion of 7-year notes Only in the unlikely event the investment community-atlarge believes the worst of the recession is behind us will the yield of this security climb at today’s auction. If the yield on this offering rises -- it is highly likely mortgage interest rates will begin to climb higher as well. I don’t think there is much to worry about here – but give the auction results at least a passing glance.
__________
Fri. Aug. 27, 8:30 a.m. ET Revised Q2 Gross Domestic Product +1.4% vs. last 2.4% Recent data points to a smaller contribution to the nation’s economic growth from inventory rebuilding and foreign trade is creating a larger drag than previously expected. The economy’s second-quarter growth rate is almost certain to be revised lower – a condition that is already well priced into the mortgage market.
Fri. Aug. 27, 11:00 a.m. ET Fed Chairman speaks at economic symposium in Jackson Hole Wyoming This is event is the "wildcard" of the week. There is a chance Fed Chairman Bernanke may use this opportunity to put market participants on notice that the Fed will soon begin to take more aggressive action in terms of its stimulus programs. If so, look for this event to be supportive of steady to perhaps fractionally lower rates.
Friday, August 20, 2010
Friday, August 20, 2010
With nothing in the way of economic data to consider today, mortgage investors are looking to trading action in the stock markets for directional cues as they set rates. Falling stock prices will tend to support the prospects for steady to perhaps fractionally lower mortgage interest rates while rising stock prices will tend to drag rates fractionally higher.
Coming up next week -- Uncle Sam will dominate the calendar with a four-part Treasury auction running from Monday through Thursday. If the stock markets continue to trade lower capital will flow from these riskier asset classes into the relative safe-haven of the Treasury market - a process that will almost certainly prove to be at least mortgage market neutral - if not outright friendly.
The National Association of Realtors is scheduled to release its July Existing Home Sales report next Tuesday followed by the Census Bureau's release of the July New Home Sale figures on Thursday. Both home sales reports are expected to show little month-over-month improvement - a condition that will tend of be supportive of steady mortgage interest rates.
Coming up next week -- Uncle Sam will dominate the calendar with a four-part Treasury auction running from Monday through Thursday. If the stock markets continue to trade lower capital will flow from these riskier asset classes into the relative safe-haven of the Treasury market - a process that will almost certainly prove to be at least mortgage market neutral - if not outright friendly.
The National Association of Realtors is scheduled to release its July Existing Home Sales report next Tuesday followed by the Census Bureau's release of the July New Home Sale figures on Thursday. Both home sales reports are expected to show little month-over-month improvement - a condition that will tend of be supportive of steady mortgage interest rates.
Thursday, August 19, 2010
Thursday, August 19, 2010
Initial claims for state unemployment benefits increased by 12,000 to a seasonally adjusted 500,000 during the week ended August 14th, the highest mark for this metric since mid-November. Today's data covered the survey week for the government's much more closely watched August nonfarm payroll report scheduled for release on Friday, September 3rd. Once this morning's disappointing numbers from the labor sector hit the newswires mortgage investors quickly priced-in expectations that the August headline nonfarm figure will show the loss of more than 130,000 jobs as a cooling economy discourages employers from adding staff and prompts some companies to step-up more dismissals.
The developing story from the labor sector will undoubtedly ratchet up pressure on the Fed and the Obama administration to introduce more stimulus measures to prevent the
Wednesday, August 18, 2010
Wednesday, August 18, 2010
Trading action in the mortgage market is thin and quiet this morning.
There is nothing in the way of meaningful economic news for mortgage investors to chew-on. Recent government data continues to show our economy stuck in limbo, not weak enough to signal a resumption of the recessionary spiral, yet not strong enough to suggest growth and employment prospects will soon brighten considerably.
For the time-being both domestic and global credit market participants are moving massive amounts of capital into the relative safe-haven of dollar denominated assets like Treasury obligations and mortgage-backed securities. The primary objective of these investors is to ultimately sell these assets at a higher price as economic conditions worsen and interest rates move yet lower.
The ever increasing risk here is that the economy does not erode dramatically from current levels. If this scenario were to play out these investors will potentially see the opportunity to sell their growing Treasury and mortgage-backed assets at a yet higher price evaporate over a relatively short period of time. Should such a market condition develop -- the ensuing selling stampede will almost certainly create an environment that sling-shots mortgage interest rates notably higher from current levels. It is worth remembering trees don't grow to the sky -- and mortgage interest rates don't slide lower forever.
I find it tragic to think about the number of borrowers who will likely miss the mortgage financing opportunity of a lifetime waiting for mortgage rates to fall to a level that may never come. It would be one thing if the opportunity was missed because they couldn't qualify for the transaction at today's historically low rates - but the real tragedy occurs if the financing opportunity slips away because of an ego driven desire to own the bragging rights to the lowest mortgage note rate in the neighborhood. I could be a little more understanding if the law required the note rate on your mortgage to be attached in large letters to your mailbox for everyone to see - but missing the chance to "lock-in" the mortgage rate of lifetime to take a shot at maybe scoring a rate that is an eighth- or a quarter-of-a-point lower than currently available is hard to fathom. Sorry -- I know I am preaching to choir - so I'll jump down off of this soapbox and move on.
According to the Mortgage Bankers of America it appears a large number of refinance candidates have decided now might be the perfect time to make their move. During the week ended August 13th the MBA reported requests for refinance loans jumped 17.1% to the highest level in 15 months. Demand for purchase money loans fell 3.4% lower. The contract rate for 30-year fixed-rate mortgages finished the reporting period at 4.6%, up by 2 basis points from the prior week, unchanged from four weeks ago and 56 basis points lower than the year ago mark. Refinance applications accounted for more than 80% of all applications currently pending.
There is nothing in the way of meaningful economic news for mortgage investors to chew-on. Recent government data continues to show our economy stuck in limbo, not weak enough to signal a resumption of the recessionary spiral, yet not strong enough to suggest growth and employment prospects will soon brighten considerably.
For the time-being both domestic and global credit market participants are moving massive amounts of capital into the relative safe-haven of dollar denominated assets like Treasury obligations and mortgage-backed securities. The primary objective of these investors is to ultimately sell these assets at a higher price as economic conditions worsen and interest rates move yet lower.
The ever increasing risk here is that the economy does not erode dramatically from current levels. If this scenario were to play out these investors will potentially see the opportunity to sell their growing Treasury and mortgage-backed assets at a yet higher price evaporate over a relatively short period of time. Should such a market condition develop -- the ensuing selling stampede will almost certainly create an environment that sling-shots mortgage interest rates notably higher from current levels. It is worth remembering trees don't grow to the sky -- and mortgage interest rates don't slide lower forever.
I find it tragic to think about the number of borrowers who will likely miss the mortgage financing opportunity of a lifetime waiting for mortgage rates to fall to a level that may never come. It would be one thing if the opportunity was missed because they couldn't qualify for the transaction at today's historically low rates - but the real tragedy occurs if the financing opportunity slips away because of an ego driven desire to own the bragging rights to the lowest mortgage note rate in the neighborhood. I could be a little more understanding if the law required the note rate on your mortgage to be attached in large letters to your mailbox for everyone to see - but missing the chance to "lock-in" the mortgage rate of lifetime to take a shot at maybe scoring a rate that is an eighth- or a quarter-of-a-point lower than currently available is hard to fathom. Sorry -- I know I am preaching to choir - so I'll jump down off of this soapbox and move on.
According to the Mortgage Bankers of America it appears a large number of refinance candidates have decided now might be the perfect time to make their move. During the week ended August 13th the MBA reported requests for refinance loans jumped 17.1% to the highest level in 15 months. Demand for purchase money loans fell 3.4% lower. The contract rate for 30-year fixed-rate mortgages finished the reporting period at 4.6%, up by 2 basis points from the prior week, unchanged from four weeks ago and 56 basis points lower than the year ago mark. Refinance applications accounted for more than 80% of all applications currently pending.
Tuesday, August 17, 2010
Tuesday, August 17, 2010
The economic news of the day was a "mixed bag" with the Commerce Department reporting weaker-than-expected July housing starts and building permit numbers while the Labor Department released data showing prices at the farm and factory gate rose for the first-time in four months.
The Federal Reserve chimed-in a little later in the morning with a report showing July industrial production rose a better than expected 1.0% while capacity utilization, a measure of the amount an industrial plant that is in use, rose to 74.8% last month from 74.1% in June.
Mortgage investors currently view the collective data as suggesting the pace of economic growth may remain robust enough to avoid the threat of a deeper recessionary plunge - a perspective that caused more than a few investors to do some profit-taking before mortgage-backed securities slip too far past their historical highs.
The Federal Reserve chimed-in a little later in the morning with a report showing July industrial production rose a better than expected 1.0% while capacity utilization, a measure of the amount an industrial plant that is in use, rose to 74.8% last month from 74.1% in June.
Mortgage investors currently view the collective data as suggesting the pace of economic growth may remain robust enough to avoid the threat of a deeper recessionary plunge - a perspective that caused more than a few investors to do some profit-taking before mortgage-backed securities slip too far past their historical highs.
Monday, August 16, 2010
Monday, August 16 2010
The mortgage market started the day on an interest rate friendly note.
There was nothing on the economic calendar to drive price action but overnight news that Japan's second-quarter economic growth was far weaker-than-expected sent Japanese investors scrambling to move capital into the relative safe-harbor of dollar denominated assets like Treasury obligations and mortgage-backed securities. The early round of "flight-to-quality" buying is beginning to fade - and so is the rally in the mortgage market favoring fractionally lower mortgage interest rates.
Tomorrow will be the most active day of the week in terms of economic news and will feature the release of the July Housing Starts and Building Permits figures, the July Producer Price data together with the July Industrial Production and Capacity Utilization numbers. None of these reports are expected to offer anything sensational enough to influence the direction of mortgage interest rates one way or the other. Thursday's initial jobless claims number might exert some noticeable upward pressure on mortgage rates - but only in the off-chance it shows a headcount decline of 15,000 or more.
In my opinion the trend trajectory of mortgage interest rates will be most influenced by trading action in the stock markets this week. My technical analysis work suggests the Dow will not close below 10200 (Friday's close was 10303.19) before perking up enough to climb into the 10800 range before running out of momentum on or before September 8th. If my assessment proves accurate, expect rising stock prices to nudge mortgage interest rates fractionally higher. My current projections for the trend trajectory of the Dow - and by extension for the mortgage market - will be completely invalidated should the Dow close below the 10200 mark this week.
There was nothing on the economic calendar to drive price action but overnight news that Japan's second-quarter economic growth was far weaker-than-expected sent Japanese investors scrambling to move capital into the relative safe-harbor of dollar denominated assets like Treasury obligations and mortgage-backed securities. The early round of "flight-to-quality" buying is beginning to fade - and so is the rally in the mortgage market favoring fractionally lower mortgage interest rates.
Tomorrow will be the most active day of the week in terms of economic news and will feature the release of the July Housing Starts and Building Permits figures, the July Producer Price data together with the July Industrial Production and Capacity Utilization numbers. None of these reports are expected to offer anything sensational enough to influence the direction of mortgage interest rates one way or the other. Thursday's initial jobless claims number might exert some noticeable upward pressure on mortgage rates - but only in the off-chance it shows a headcount decline of 15,000 or more.
In my opinion the trend trajectory of mortgage interest rates will be most influenced by trading action in the stock markets this week. My technical analysis work suggests the Dow will not close below 10200 (Friday's close was 10303.19) before perking up enough to climb into the 10800 range before running out of momentum on or before September 8th. If my assessment proves accurate, expect rising stock prices to nudge mortgage interest rates fractionally higher. My current projections for the trend trajectory of the Dow - and by extension for the mortgage market - will be completely invalidated should the Dow close below the 10200 mark this week.
Friday, August 13, 2010
FRIDAY THE 13TH of August, 2010
Retail Sales in July rebounded a little while inflation pressures at the consumer level remained stuck at their lowest levels since the 60's.
Overall retail sales were 0.4% higher last month. Excluding autos, sales were up a more modest 0.2%. The July improvement followed two months of decline. Mortgage investors gave the data little more than a passing glance since it is almost a given the pace of sales will remain anemic until job and wage growth show sustained improvement.
Higher energy costs during the month of July nudged the headline consumer price index higher by 0.4%, the first rise in this metric in four months. But outside the more volatile food and energy components the so-called "core" cost of living crept only 0.2% higher, leaving the year-over year gain at just 0.9% for a fourth consecutive month - a positive for the near-term prospects of steady to fractionally lower mortgage interest rates.
The coming week will offer a respite from all the drama of the past five trading days. Tuesday will be an active day with the release of the July Housing Starts and Building Permits figures, the July Producer Price data together with the July Industrial Production and Capacity Utilization numbers. None of these reports are expected to offer anything sensational enough to influence the direction of mortgage interest rates one way or the other. Thursday's initial jobless claims number might exert some noticeable upward pressure on mortgage rates - but only in the off-chance it shows a headcount decline of 15,000 or more.
In my opinion the trend trajectory of mortgage interest rates will be most influenced by trading action in the stock markets next week. In my judgment should the Dow closes above 10600 -- it will likely move on up to 10800 or so before running out of steam. If this scenario develops look for mortgage interest rates to move fractionally higher. I will consider this assessment to be completely invalid should the Dow close below 10200 - but for the time being I believe the probabilities are tilting in favor of a short-lived but relatively powerful counter-trend rally in the stock market. Heads up.
Overall retail sales were 0.4% higher last month. Excluding autos, sales were up a more modest 0.2%. The July improvement followed two months of decline. Mortgage investors gave the data little more than a passing glance since it is almost a given the pace of sales will remain anemic until job and wage growth show sustained improvement.
Higher energy costs during the month of July nudged the headline consumer price index higher by 0.4%, the first rise in this metric in four months. But outside the more volatile food and energy components the so-called "core" cost of living crept only 0.2% higher, leaving the year-over year gain at just 0.9% for a fourth consecutive month - a positive for the near-term prospects of steady to fractionally lower mortgage interest rates.
The coming week will offer a respite from all the drama of the past five trading days. Tuesday will be an active day with the release of the July Housing Starts and Building Permits figures, the July Producer Price data together with the July Industrial Production and Capacity Utilization numbers. None of these reports are expected to offer anything sensational enough to influence the direction of mortgage interest rates one way or the other. Thursday's initial jobless claims number might exert some noticeable upward pressure on mortgage rates - but only in the off-chance it shows a headcount decline of 15,000 or more.
In my opinion the trend trajectory of mortgage interest rates will be most influenced by trading action in the stock markets next week. In my judgment should the Dow closes above 10600 -- it will likely move on up to 10800 or so before running out of steam. If this scenario develops look for mortgage interest rates to move fractionally higher. I will consider this assessment to be completely invalid should the Dow close below 10200 - but for the time being I believe the probabilities are tilting in favor of a short-lived but relatively powerful counter-trend rally in the stock market. Heads up.
Wednesday, August 11, 2010
WEDNESDAY, August 11 2010
Investors around the world are swarming into the relative safe haven of Treasury obligations as the global economy continues to show signs of cooling. The yield on 2-year notes touched a new historical low earlier today at 2.687%. This new round of "flight-to-quality" buying was ignited by yesterday's surprise move by the Fed to begin a modified stimulus program by reinvesting the proceeds their portfolio of maturing mortgage-backed securities into longer-dated Treasury obligations.
The projected purchasing power the Fed is expected to deploy next year is projected be about $200 billion - certainly a big number to you and me - but a fairly modest sum in terms of its influence in the Treasury market. The latest guesstimates I've seen suggest the new round of buying by the Fed will help hold Treasury yields (and by extension mortgage interest rates) about 50 basis-points lower than they might have otherwise been. Nice - but certainly not as earthshaking as some of the media talking heads are trying to make it out to be.
I'll be particularly interested to see how the Fed's new program influences bank lending. Banks, especially big money center banks, have curtailed much of their normal lending operations in favor of engaging in very profitable "carry trades" - a transaction in which the bank borrows short-term money from the Federal Reserve near 0% and invests the loan proceeds in longer-dated Treasury obligations at 2+% -- making a very handsome, no-risk return in the process. That is a heck-of-a-deal for the bank - but it significantly retards growth for the broader economy.
If the Fed successfully squeezes a large part of the profit out of the "carry trade" by keeping long-term interest rates low -- banks will ultimately go looking for the higher returns to be found providing financing for the growth of the overall economy. We'll see is this scenario works out - but it is possible the Fed may have indeed engineered a process to get the engine of economic growth restarted.
As they do every Wednesday, the Mortgage Bankers of America have released their mortgage application survey for the week ended August 6th. The overall index, which includes both purchase and refinance loan requests, climbed 0.6% higher for the week. Refinance demand was 0.6% while purchase demand edged up by 0.3%. The contract rate for 30-year fixed-rate mortgages (a value which excludes lender fees and points) fell to 4.57%, the lowest ever recorded by the MBA in 20-years of record keeping.
Uncle Sam will be in the credit markets today conducting an auction of a $24 billion bundle of 10-year notes. The sale is expected to draw decent demand from both domestic and global investors alike. If so, this event will not likely exert significant influence on the direction of mortgage interest rates one way or the other.
The projected purchasing power the Fed is expected to deploy next year is projected be about $200 billion - certainly a big number to you and me - but a fairly modest sum in terms of its influence in the Treasury market. The latest guesstimates I've seen suggest the new round of buying by the Fed will help hold Treasury yields (and by extension mortgage interest rates) about 50 basis-points lower than they might have otherwise been. Nice - but certainly not as earthshaking as some of the media talking heads are trying to make it out to be.
I'll be particularly interested to see how the Fed's new program influences bank lending. Banks, especially big money center banks, have curtailed much of their normal lending operations in favor of engaging in very profitable "carry trades" - a transaction in which the bank borrows short-term money from the Federal Reserve near 0% and invests the loan proceeds in longer-dated Treasury obligations at 2+% -- making a very handsome, no-risk return in the process. That is a heck-of-a-deal for the bank - but it significantly retards growth for the broader economy.
If the Fed successfully squeezes a large part of the profit out of the "carry trade" by keeping long-term interest rates low -- banks will ultimately go looking for the higher returns to be found providing financing for the growth of the overall economy. We'll see is this scenario works out - but it is possible the Fed may have indeed engineered a process to get the engine of economic growth restarted.
As they do every Wednesday, the Mortgage Bankers of America have released their mortgage application survey for the week ended August 6th. The overall index, which includes both purchase and refinance loan requests, climbed 0.6% higher for the week. Refinance demand was 0.6% while purchase demand edged up by 0.3%. The contract rate for 30-year fixed-rate mortgages (a value which excludes lender fees and points) fell to 4.57%, the lowest ever recorded by the MBA in 20-years of record keeping.
Uncle Sam will be in the credit markets today conducting an auction of a $24 billion bundle of 10-year notes. The sale is expected to draw decent demand from both domestic and global investors alike. If so, this event will not likely exert significant influence on the direction of mortgage interest rates one way or the other.
TUESDAY, August 10, 2010 UPDATE
Update 1:30 p.m. ET.
At the conclusion of their one-day meeting the members of the Federal Open Market Committee announced their decision to leave short-term interest rates unchanged for an "extended period." The Committee also made public their intent to "hold steady" their balance sheet by reinvesting the proceeds from their maturing mortgage-backed security portfolio into longer-dated Treasury obligations. This action is deemed to be a preemptive move by the Fed to head-off a sharper down-turn in the economy by maintaining a stronger-than-normal demand for government debt.
Bond daddies like this move by the Fed because it will tend to hold overall interest rates - and especially longer-term interest rates - at lower levels than normal market conditions might have otherwise supported. Stock jocks like the Fed's strategy because it means the Fed remains strongly engaged in the effort to "do what it takes" to stimulate economic growth through monetary processes. For the time being all is well in both the credit and stock markets.
At the conclusion of their one-day meeting the members of the Federal Open Market Committee announced their decision to leave short-term interest rates unchanged for an "extended period." The Committee also made public their intent to "hold steady" their balance sheet by reinvesting the proceeds from their maturing mortgage-backed security portfolio into longer-dated Treasury obligations. This action is deemed to be a preemptive move by the Fed to head-off a sharper down-turn in the economy by maintaining a stronger-than-normal demand for government debt.
Bond daddies like this move by the Fed because it will tend to hold overall interest rates - and especially longer-term interest rates - at lower levels than normal market conditions might have otherwise supported. Stock jocks like the Fed's strategy because it means the Fed remains strongly engaged in the effort to "do what it takes" to stimulate economic growth through monetary processes. For the time being all is well in both the credit and stock markets.
TUESDAY, August 10, 2010
Blog is Back - BETTER than ever with the up to the minute mortgage market updates that you want and need to follow!!
Will they or won't they?
The core question mortgage investors are batting back and forth among themselves this morning has to do with what, if any changes Fed Chairman Bernanke and his band of merry central bankers will choose to make to current monetary policy. The Fed will make their decision known through their post-meeting statement expected to be issued at 2:15 p.m. ET. I will provide you with an update as quickly as I can immediately thereafter.
In my opinion policymakers will renew their vow to keep their benchmark short-term interest rates near zero for an "extended period" -- and will indicate their concern the budding economic recovery is at risk -- but they will stop short of announcing any form of new stimulus program. I look for the Fed to highlight the fact they have a large arsenal of tools immediately available should additional monetary stimulus be required. If my assessment is correct, the stock market will be vulnerable to a rather sharp sell-off while mortgage interest rates will likely continue to hover within shouting distance of current levels.
In the off-chance the Fed says the risks of the economy tumbling deeper into a recessionary spiral has increased to the point that immediate stimulus steps must be deployed - stocks will likely bounce back and forth in a wide trading range while mortgage interest rates initially knee-jerk rally to new lows on an intraday basis -- before a surge in profit-taking pressures create a long, slow leak back the other way.
No matter how you choose to "slice-and-dice-it" there is no escaping the reality that the core energy source needed to reignite the economic recovery process is now far less dependent on significantly lower interest rates (most hovering at or near their historical lows) - than it is in a marked improvement in fiscal policy - which is the direct domain of Congress and the Obama administration.
Prior to the conclusion of the Fed meeting Uncle Sam will be in the credit markets conducting an auction of a $34 billion bundle of 3-year notes. The sale is expected to draw decent demand from both domestic and global investors alike. If so, this event will not likely exert significant influence on the direction of mortgage interest rates one way or the other. I'll provide an auction update on my web site as soon as possible once the final gavel falls at 1:00 p.m. ET.
Will they or won't they?
The core question mortgage investors are batting back and forth among themselves this morning has to do with what, if any changes Fed Chairman Bernanke and his band of merry central bankers will choose to make to current monetary policy. The Fed will make their decision known through their post-meeting statement expected to be issued at 2:15 p.m. ET. I will provide you with an update as quickly as I can immediately thereafter.
In my opinion policymakers will renew their vow to keep their benchmark short-term interest rates near zero for an "extended period" -- and will indicate their concern the budding economic recovery is at risk -- but they will stop short of announcing any form of new stimulus program. I look for the Fed to highlight the fact they have a large arsenal of tools immediately available should additional monetary stimulus be required. If my assessment is correct, the stock market will be vulnerable to a rather sharp sell-off while mortgage interest rates will likely continue to hover within shouting distance of current levels.
In the off-chance the Fed says the risks of the economy tumbling deeper into a recessionary spiral has increased to the point that immediate stimulus steps must be deployed - stocks will likely bounce back and forth in a wide trading range while mortgage interest rates initially knee-jerk rally to new lows on an intraday basis -- before a surge in profit-taking pressures create a long, slow leak back the other way.
No matter how you choose to "slice-and-dice-it" there is no escaping the reality that the core energy source needed to reignite the economic recovery process is now far less dependent on significantly lower interest rates (most hovering at or near their historical lows) - than it is in a marked improvement in fiscal policy - which is the direct domain of Congress and the Obama administration.
Prior to the conclusion of the Fed meeting Uncle Sam will be in the credit markets conducting an auction of a $34 billion bundle of 3-year notes. The sale is expected to draw decent demand from both domestic and global investors alike. If so, this event will not likely exert significant influence on the direction of mortgage interest rates one way or the other. I'll provide an auction update on my web site as soon as possible once the final gavel falls at 1:00 p.m. ET.
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