Uncle Sam will be thrashing around in the credit markets one more time today - looking to peddle a $32 billion stack of 7-year notes as he wraps up this week's three-part $118 billion borrowing spree. Tuesday's $44 billion 2-year offering and yesterday's 5-year note sale attracted solid demand. If today's 7-year note offering is equally well received this event will have little if any direct impact on mortgage interest rates.
There is a slight chance we might even see a little "relief-rally" in the credit markets as traders celebrate the fact that it will be another two weeks before they have to deal with supply issues from Uncle Sam once again. That's the good news. The bad news here is that a trembling, weak-kneed auction for today's 7-year offering will almost certainly result in a noticeable upward swing in mortgage interest rates. While such an outcome is certainly possible - it is not very probable.
In other news of the day Senate Majority Leader Harry Reid said the Senate may hold a final vote on Ben Bernanke's nomination to serve a second four-year term as Federal Reserve chairman. Market participants are far more comfortable with the devil they know - as opposed to the devil they have yet to meet. (Just so we are all clear here - the preceding was simply a turn of a phrase - not a suggestion I believe Mr. Bernanke to be an evil spirit drifting around in the financial markets.) It probably won't last long - but Mr. Bernanke's confirmation will likely spawn a short-lived price rally as market participants demonstrate their approval of the Senate's decision.
Mortgage investors responded to today's December Durable Goods Orders gain of 0.3% and the 8,000 headcount decline in the initial jobless claims figure for the week ended January 23rd with little more than a disinterested yawn and a shoulder shrug.
Thursday, January 28, 2010
Wednesday, January 27, 2010
Wednesday, January 27, 2010
Earlier this morning the Commerce Department reported newly built single-family homes fell by a larger-than-expected 7.6% in December. Bad weather may have played a role in the December new home sales data. Last month was the 14th coldest December and 11th wettest in 115 years of record keeping according to the National Climatic Data Center.
Bad weather or good -- the housing market recovery is showing some signs of fatigue after a mid-year surge in sales as first-time homebuyers rushed to take advantage of a popular tax credit, which had been scheduled to expire in November. Most analysts expect home sales to pick up as a result, though most don't expect the pace to be quite as strong as it was under the initial program. Mortgage investors essentially shrugged this data off this morning and remain far more focused on the upcoming Treasury auctions, Fed meeting, and the last minute political wrangling surrounding the likely reappointment of Fed Chairman Bernanke.
Next up for mortgage investors is this afternoon's $42 billion 5-year note auction (concludes at 1:00 p.m. ET) followed within an hour or so by the release of the much anticipated post-meeting statement from the Federal Open Market Committee.
Yesterday's $44 billion two-year note auction attracted solid demand, with the total number of bids strongly higher than the average for the 12 auctions of two-year debt that took place last year. It's a decent start to this week's three-part Treasury auction and let's hope the momentum is sustained. Aggressive bidding and solid foreign investor participation at today's 5-year note auction will tend to be supportive of the prospects for steady to slightly lower mortgage interest rates. In the unlikely event today's 5-year note sale is a bust - look for mortgage interest rates to finish the day higher.
It is Wednesday morning which means the Mortgage Bankers of America have released their mortgage application survey for the previous week. During the week ended January 22nd the MBA said overall mortgage loan demand dropped 10.9% from the previous week. The purchase index fell 3.3% while the requests for refinance loans fell 15.1%. Refinance applications accounted for 67.6% of all applications - down slightly from last week, when they were 71.1% of the total.
Bad weather or good -- the housing market recovery is showing some signs of fatigue after a mid-year surge in sales as first-time homebuyers rushed to take advantage of a popular tax credit, which had been scheduled to expire in November. Most analysts expect home sales to pick up as a result, though most don't expect the pace to be quite as strong as it was under the initial program. Mortgage investors essentially shrugged this data off this morning and remain far more focused on the upcoming Treasury auctions, Fed meeting, and the last minute political wrangling surrounding the likely reappointment of Fed Chairman Bernanke.
Next up for mortgage investors is this afternoon's $42 billion 5-year note auction (concludes at 1:00 p.m. ET) followed within an hour or so by the release of the much anticipated post-meeting statement from the Federal Open Market Committee.
Yesterday's $44 billion two-year note auction attracted solid demand, with the total number of bids strongly higher than the average for the 12 auctions of two-year debt that took place last year. It's a decent start to this week's three-part Treasury auction and let's hope the momentum is sustained. Aggressive bidding and solid foreign investor participation at today's 5-year note auction will tend to be supportive of the prospects for steady to slightly lower mortgage interest rates. In the unlikely event today's 5-year note sale is a bust - look for mortgage interest rates to finish the day higher.
It is Wednesday morning which means the Mortgage Bankers of America have released their mortgage application survey for the previous week. During the week ended January 22nd the MBA said overall mortgage loan demand dropped 10.9% from the previous week. The purchase index fell 3.3% while the requests for refinance loans fell 15.1%. Refinance applications accounted for 67.6% of all applications - down slightly from last week, when they were 71.1% of the total.
Tuesday, January 26, 2010
Tuesday, January 26, 2010
Nervousness about the sustainability of the economic recovery combined with jitters about the health of our domestic stock markets and breaking news that Japan's sovereign debt rating may be downgraded in the face of massive deficits will likely combine to drive investors in droves to today's $44 billion two-year Treasury note auction. This sale is part of this week's $118 billion, three-part borrowing spree by Uncle Sam.
The Treasury Department is scheduled to sell an at-record $42 billion stack of 5-year notes tomorrow and a $32 billion bundle of 7-year notes on Thursday. An overall expectation among market participants is that all three debt offerings will be solidly bid. With all the economic and geopolitical uncertainty currently flowing through the market place - most investors with a dollar to spend in the Treasury market are likely going to invest in the shorter-end of the yield curve - rather than in a 10-year note or 30-year bond. Well bid auctions with solid foreign investor participation will not likely influence the direction of mortgage interest rates much one way or the other. In the off chance any one of these three auctions is deemed to have been poorly bid - defined by a higher yield and lower price - you can bet mortgage investors will likely push their rates higher as well.
The fact that the Fed will be holding a two-day monetary policy meeting right in the middle of Uncle Sam's borrowing spree is not helping lower trader anxiety levels. Mortgage investors are fretting about what the Fed may say about it's exist strategy from its emergency market measures. The Fed has essentially two responsibilities; promoting full employment and keeping inflation in check. The high jobless rate means the Fed is far from accomplishing its first goal while extremely benign inflation pressure are helping them achieve their second objective. Against this backdrop it is highly likely the Fed's post-meeting statement on Wednesday afternoon will include only minor changes to the December statement but will focus on the headwinds still facing the economy as it struggles to recover from the worst recession since World War II. At the end of the day - the probabilities are high that this event will exert little, if any significant influence on the trend trajectory of mortgage interest rates.
This week's Federal Open Market Committee meeting is at bit more dramatic than normal due to the fact that Fed Chairman Ben Bernanke's path to a second term has taken an unexpected, and potentially dangerous turn for the worse. If Bernanke is not confirmed before his current term expires on January 31st - the effect on mortgage interest rates will likely be swift - and unpleasant. A Congressional refusal to give Bernanke a second term will likely be perceived by credit market participants as politicizing decisions on monetary policy, a condition sure to negatively impact the creditability of the central bank with domestic and foreign investors alike.
The latest buzz-on-the-street suggests law makers are quickly coming to the realization that refusal to reseat Bernanke for a second term is a "slippery-slope" that is probably in their political best interest to avoid ahead of November's mid-term elections. An affirmative vote before the end of the week looks likely.
The Treasury Department is scheduled to sell an at-record $42 billion stack of 5-year notes tomorrow and a $32 billion bundle of 7-year notes on Thursday. An overall expectation among market participants is that all three debt offerings will be solidly bid. With all the economic and geopolitical uncertainty currently flowing through the market place - most investors with a dollar to spend in the Treasury market are likely going to invest in the shorter-end of the yield curve - rather than in a 10-year note or 30-year bond. Well bid auctions with solid foreign investor participation will not likely influence the direction of mortgage interest rates much one way or the other. In the off chance any one of these three auctions is deemed to have been poorly bid - defined by a higher yield and lower price - you can bet mortgage investors will likely push their rates higher as well.
The fact that the Fed will be holding a two-day monetary policy meeting right in the middle of Uncle Sam's borrowing spree is not helping lower trader anxiety levels. Mortgage investors are fretting about what the Fed may say about it's exist strategy from its emergency market measures. The Fed has essentially two responsibilities; promoting full employment and keeping inflation in check. The high jobless rate means the Fed is far from accomplishing its first goal while extremely benign inflation pressure are helping them achieve their second objective. Against this backdrop it is highly likely the Fed's post-meeting statement on Wednesday afternoon will include only minor changes to the December statement but will focus on the headwinds still facing the economy as it struggles to recover from the worst recession since World War II. At the end of the day - the probabilities are high that this event will exert little, if any significant influence on the trend trajectory of mortgage interest rates.
This week's Federal Open Market Committee meeting is at bit more dramatic than normal due to the fact that Fed Chairman Ben Bernanke's path to a second term has taken an unexpected, and potentially dangerous turn for the worse. If Bernanke is not confirmed before his current term expires on January 31st - the effect on mortgage interest rates will likely be swift - and unpleasant. A Congressional refusal to give Bernanke a second term will likely be perceived by credit market participants as politicizing decisions on monetary policy, a condition sure to negatively impact the creditability of the central bank with domestic and foreign investors alike.
The latest buzz-on-the-street suggests law makers are quickly coming to the realization that refusal to reseat Bernanke for a second term is a "slippery-slope" that is probably in their political best interest to avoid ahead of November's mid-term elections. An affirmative vote before the end of the week looks likely.
Monday, January 25, 2010
Monday, January 25, 2010
Mortgage investors are skittish this week as Uncle Sam wades back into the credit markets looking to borrow $118 billion in the form of 3-, 5- and 7-year notes.
The fact that the Fed will be holding a two-day monetary policy meeting right in the middle of Uncle Sam's borrowing spree is not helping lower trader anxiety levels. Mortgage investors are fretting about what the Fed may say about it's exist strategy from its emergency market measures. Current speculation that Wednesday's post-meeting statement from policymakers will sound sharply threatening to the prospects of steady to lower mortgage interest rates is, in my opinion, way over done.
The Fed has essentially two responsibilities; promoting full employment and keeping inflation in check. The high jobless rate means the Fed is far from accomplishing its first goal while extremely benign inflation pressure are helping them achieve their second objective. Against this backdrop it is highly likely the Fed's post-meeting statement on Wednesday afternoon will include only minor changes to the December statement but will focus on the headwinds still facing the economy as it struggles to recover from the worst recession since World War II. At the end of the day - the probabilities are high that this event will exert little, if any significant influence on the trend trajectory of mortgage interest rates.
This week's Federal Open Market Committee meeting is at bit more dramatic than normal due to the fact that Fed Chairman Ben Bernanke's path to a second term has taken an unexpected, and potentially dangerous turn for the worse. If Bernanke is not confirmed before his current term expires on January 31st - the effect on mortgage interest rates will likely be swift - and unpleasant. A Congressional refusal to give Bernanke a second term will likely be perceived by credit market participants as politicizing decisions on monetary policy, a condition sure to negatively impact the creditability of the central bank with domestic and foreign investors alike.
The latest buzz-on-the-street suggests law makers are quickly coming to the realization that refusal to reseat Bernanke for a second term is a "slippery-slope" that is probably in their political best interest to avoid ahead of November's mid-term elections.
The larger-than-expected drop in the December existing home sales figures almost went unnoticed as mortgage investors were distracted by other developing events. The National Association of Realtors reported earlier this morning that the pace of December existing home sales fell 16.7% from month earlier levels. It was the biggest decline for this index since records began in 1968. Much of the sharp month-over-month decline was the result of "front-loading" as the end of the $8,000 first-time home-buyer tax credit in November drove many buyers who might have otherwise delayed their home purchases to push forward their buying plans. While this phenomenon will probably result in a slower pace of sales in the first quarter, the extended and expanded homebuyer tax credit program will help put a floor under overall sales. The missing ingredient for a sustainable improvement for both existing and new home sales figures is jobs. Until job growth and the attendant improvement in consumer confidence returns -- the pace of home sales across the board will likely remain muted.
The fact that the Fed will be holding a two-day monetary policy meeting right in the middle of Uncle Sam's borrowing spree is not helping lower trader anxiety levels. Mortgage investors are fretting about what the Fed may say about it's exist strategy from its emergency market measures. Current speculation that Wednesday's post-meeting statement from policymakers will sound sharply threatening to the prospects of steady to lower mortgage interest rates is, in my opinion, way over done.
The Fed has essentially two responsibilities; promoting full employment and keeping inflation in check. The high jobless rate means the Fed is far from accomplishing its first goal while extremely benign inflation pressure are helping them achieve their second objective. Against this backdrop it is highly likely the Fed's post-meeting statement on Wednesday afternoon will include only minor changes to the December statement but will focus on the headwinds still facing the economy as it struggles to recover from the worst recession since World War II. At the end of the day - the probabilities are high that this event will exert little, if any significant influence on the trend trajectory of mortgage interest rates.
This week's Federal Open Market Committee meeting is at bit more dramatic than normal due to the fact that Fed Chairman Ben Bernanke's path to a second term has taken an unexpected, and potentially dangerous turn for the worse. If Bernanke is not confirmed before his current term expires on January 31st - the effect on mortgage interest rates will likely be swift - and unpleasant. A Congressional refusal to give Bernanke a second term will likely be perceived by credit market participants as politicizing decisions on monetary policy, a condition sure to negatively impact the creditability of the central bank with domestic and foreign investors alike.
The latest buzz-on-the-street suggests law makers are quickly coming to the realization that refusal to reseat Bernanke for a second term is a "slippery-slope" that is probably in their political best interest to avoid ahead of November's mid-term elections.
The larger-than-expected drop in the December existing home sales figures almost went unnoticed as mortgage investors were distracted by other developing events. The National Association of Realtors reported earlier this morning that the pace of December existing home sales fell 16.7% from month earlier levels. It was the biggest decline for this index since records began in 1968. Much of the sharp month-over-month decline was the result of "front-loading" as the end of the $8,000 first-time home-buyer tax credit in November drove many buyers who might have otherwise delayed their home purchases to push forward their buying plans. While this phenomenon will probably result in a slower pace of sales in the first quarter, the extended and expanded homebuyer tax credit program will help put a floor under overall sales. The missing ingredient for a sustainable improvement for both existing and new home sales figures is jobs. Until job growth and the attendant improvement in consumer confidence returns -- the pace of home sales across the board will likely remain muted.
Wednesday, January 20, 2010
Wednesday, January 20, 2009
The Commerce Department reported this morning that housing starts fell 4.0% in December. Most investors shrugged the slump in home construction off - noting that much of the country was in the grips of a major cold snap during the month -- making the digging of footings and the pouring of concrete almost impossible. Even though builders were not at their construction sites they were busy - filing new building permits. Building permits soared 10.7% higher in December - strongly suggesting home builders will be very busy once the spring thaw begins.
The Mortgage Bankers of America chimed in with their standard Wednesday report regarding loan demand for the past week. The MBA said their figures showed overall mortgage loan demand surged 9.1% higher. The increase was driven by a 10.7% increase in refinance requests, while home purchase demand rose 4.4%. The contract rate for 30-year fixed rate mortgages finished at 5.0%, down 13 basis points from the prior week level.
A separate report from the Labor Department showed producer prices rose 0.2% last month as food prices rose, leading the overall index to its largest year-over year gain since October 2008. The more important core rate of inflation at the wholesale level (a value stripped of the more volatile food and energy components) was unchanged in December -- effectively counterbalancing the headline gain in the produce price index. Mortgage investors gave the bit of inflation news nothing more than a passing glance and a disinterested yawn this morning.
Much of today's price improvement is likely due to positive mortgage investor reaction regarding the news that Scott Brown, a Republican, had defeated Democrat Martha Coakley in the political race to fill the vacant Massachusetts Senate seat left by the late Senator Edward Kennedy.
Partisan politics aside - most mortgage investors are keenly aware that without filibuster-proof control of the Senate by one party, approval for new programs - such as an overhaul of the healthcare system - which could require heavy government spending -- will be harder to obtain.
The "so what" factor here is straightforward. Uncle Sam is the mortgage market's biggest competitor in terms of attracting capital from both global and domestic investors. The possibility that the capital demand coming from Uncle Sam may be diminished in coming months tends to be supportive of at least steady mortgage interest rates.
It is likely mortgage investors will take at least a passing glance at tomorrow's December Leading Economic Index presented by the private Conference Board. The Conference Board's Leading Indicator Index is intended to forecast likely economic conditions three to nine months in the future. If, as expected, the index posts a gain of 0.7% or higher, it will have fully reversed the decline seen during the Great Recession - a condition that will almost certainly exert some upward pressure on mortgage interest rates.
With nothing else to capture their attention during the run-up to Thursday's release of the Leading Economic Index - look for mortgage investors to take their interest rate directional cues from trading activity in the stock markets. Rising stock prices will tend to drive mortgage interest rates higher -- while falling stock prices will tend to be supportive of steady to perhaps fractionally lower mortgage interest rates.
The Mortgage Bankers of America chimed in with their standard Wednesday report regarding loan demand for the past week. The MBA said their figures showed overall mortgage loan demand surged 9.1% higher. The increase was driven by a 10.7% increase in refinance requests, while home purchase demand rose 4.4%. The contract rate for 30-year fixed rate mortgages finished at 5.0%, down 13 basis points from the prior week level.
A separate report from the Labor Department showed producer prices rose 0.2% last month as food prices rose, leading the overall index to its largest year-over year gain since October 2008. The more important core rate of inflation at the wholesale level (a value stripped of the more volatile food and energy components) was unchanged in December -- effectively counterbalancing the headline gain in the produce price index. Mortgage investors gave the bit of inflation news nothing more than a passing glance and a disinterested yawn this morning.
Much of today's price improvement is likely due to positive mortgage investor reaction regarding the news that Scott Brown, a Republican, had defeated Democrat Martha Coakley in the political race to fill the vacant Massachusetts Senate seat left by the late Senator Edward Kennedy.
Partisan politics aside - most mortgage investors are keenly aware that without filibuster-proof control of the Senate by one party, approval for new programs - such as an overhaul of the healthcare system - which could require heavy government spending -- will be harder to obtain.
The "so what" factor here is straightforward. Uncle Sam is the mortgage market's biggest competitor in terms of attracting capital from both global and domestic investors. The possibility that the capital demand coming from Uncle Sam may be diminished in coming months tends to be supportive of at least steady mortgage interest rates.
It is likely mortgage investors will take at least a passing glance at tomorrow's December Leading Economic Index presented by the private Conference Board. The Conference Board's Leading Indicator Index is intended to forecast likely economic conditions three to nine months in the future. If, as expected, the index posts a gain of 0.7% or higher, it will have fully reversed the decline seen during the Great Recession - a condition that will almost certainly exert some upward pressure on mortgage interest rates.
With nothing else to capture their attention during the run-up to Thursday's release of the Leading Economic Index - look for mortgage investors to take their interest rate directional cues from trading activity in the stock markets. Rising stock prices will tend to drive mortgage interest rates higher -- while falling stock prices will tend to be supportive of steady to perhaps fractionally lower mortgage interest rates.
Tuesday, January 19, 2010
Tuesday, January 19, 2010
The coming week's economic calendar doesn't offer much of substance for mortgage investors to chew-on during the coming four-day holiday shortened trading sessions. There are no scheduled government debt auctions and members of the Federal Open Market committee have entered their "period of silence" in front of their two-day meeting next week.
It is likely mortgage investors will take at least a passing glance at Thursday's December Leading Economic Index presented by the private Conference Board. The Conference Board's Leading Indicator Index is intended to forecast likely economic conditions three to nine months in the future. If, as expected, the index posts a gain of 0.7% or higher, it will have fully reversed the decline seen during the Great Recession - a condition that will almost certainly exert some upward pressure on mortgage interest rates.
With nothing else to capture their attention during the run-up to Thursday's release of the Leading Economic Index - look for mortgage investors to take their interest rate directional cues from trading activity in the stock markets. Rising stock prices will tend to drive mortgage interest rates higher -- while falling stock prices will tend to be supportive of steady to perhaps fractionally lower mortgage interest rates.
It is likely mortgage investors will take at least a passing glance at Thursday's December Leading Economic Index presented by the private Conference Board. The Conference Board's Leading Indicator Index is intended to forecast likely economic conditions three to nine months in the future. If, as expected, the index posts a gain of 0.7% or higher, it will have fully reversed the decline seen during the Great Recession - a condition that will almost certainly exert some upward pressure on mortgage interest rates.
With nothing else to capture their attention during the run-up to Thursday's release of the Leading Economic Index - look for mortgage investors to take their interest rate directional cues from trading activity in the stock markets. Rising stock prices will tend to drive mortgage interest rates higher -- while falling stock prices will tend to be supportive of steady to perhaps fractionally lower mortgage interest rates.
Friday, January 15, 2010
Friday, January 15, 2009
Credit market investors are breathing a huge sigh of relief now that Uncle Sam has wrapped up his $84 billion, four-part auction and is not expected to be back in the credit markets for a couple of more weeks.
Today's rally in the mortgage market is also being supported by news from the Labor Department that inflation pressures at the consumer level remain benign. The headline Consumer Price Index rose 0.1% last month from November as food and energy costs gained only modestly and housing-related expenses held steady. Stripping out the more volatile food and energy prices, the Labor Department said the core rate of the consumer price index edged up 0.1% in December after being flat the prior month. Compared with December 2008, the core inflation rate rose 1.8% -- well within the Fed's stated tolerance level of 2.0%. Fed Chairman Bernanke and his fellow central bankers are likely walking around Washington with a look of relief on their faces - since there is certainly nothing in today's inflation data to suggest an imminent change to their current monetary policy is necessary - and that's a good thing for the prospects for steady to perhaps fractionally lower mortgage interest rates ahead.
Considering all of the cross-currents created by this week's very active schedule of government debt auctions - mortgage interest weathered the storm rather well. According to Freddie Mac, the rate for 30-year fixed home loans dropped to 5.06% for the week (ended yesterday) from 5.09% the prior week.
Looking ahead to the upcoming holiday shortened week the economic calendar offers the December Producer Price Index figures and December Housing Starts and Building Permit stats on Wednesday together with the standard weekly initial jobless claims data on Thursday. The consensus estimate for all three reports calls for their respective values to fall within mortgage market neutral ranges.
Today's rally in the mortgage market is also being supported by news from the Labor Department that inflation pressures at the consumer level remain benign. The headline Consumer Price Index rose 0.1% last month from November as food and energy costs gained only modestly and housing-related expenses held steady. Stripping out the more volatile food and energy prices, the Labor Department said the core rate of the consumer price index edged up 0.1% in December after being flat the prior month. Compared with December 2008, the core inflation rate rose 1.8% -- well within the Fed's stated tolerance level of 2.0%. Fed Chairman Bernanke and his fellow central bankers are likely walking around Washington with a look of relief on their faces - since there is certainly nothing in today's inflation data to suggest an imminent change to their current monetary policy is necessary - and that's a good thing for the prospects for steady to perhaps fractionally lower mortgage interest rates ahead.
Considering all of the cross-currents created by this week's very active schedule of government debt auctions - mortgage interest weathered the storm rather well. According to Freddie Mac, the rate for 30-year fixed home loans dropped to 5.06% for the week (ended yesterday) from 5.09% the prior week.
Looking ahead to the upcoming holiday shortened week the economic calendar offers the December Producer Price Index figures and December Housing Starts and Building Permit stats on Wednesday together with the standard weekly initial jobless claims data on Thursday. The consensus estimate for all three reports calls for their respective values to fall within mortgage market neutral ranges.
Tuesday, January 12, 2010
tuesday, January 12, 2010
Uncle Sam is in the credit markets today looking to borrow $40 billion in the form of 3-year notes. Demand for this debt offering will likely be solid - since the big run-up in yields last month left prices at very attractive levels. Bigger test of investors' appetite for more government debt will come tomorrow when Uncle Sam looks to off-load a $21 billion stack of 10-year notes followed by a $13 billion wad of 30-year bonds on Thursday.
The economic calendar has nothing to offer today. Under these conditions trading action in the stock markets will likely exert more than normal influence on the trend trajectory of mortgage interest rates. Look for falling stock prices to be supportive of steady to perhaps fractionally lower mortgage interest rates while rising stock prices will have an inclination to push mortgage interest rates higher.
The economic calendar has nothing to offer today. Under these conditions trading action in the stock markets will likely exert more than normal influence on the trend trajectory of mortgage interest rates. Look for falling stock prices to be supportive of steady to perhaps fractionally lower mortgage interest rates while rising stock prices will have an inclination to push mortgage interest rates higher.
Friday, January 8, 2010
Friday, January 8, 2010
The Labor Department reported earlier this morning that 85,000 more jobs were lost in December than were created. Revisions to prior month's figures showed the economy actually added 4,000 jobs in November rather than losing 11,000 as was initially reported. The government's "do-over" for October resulted in reported job losses of 127,000.
The majority of economists had projected a headline payroll loss in December of 8,000. These same economists are now blaming their wide miss on December job market conditions on the weather - pointing out two major storms blanked the Northeast and Midwest during the data survey period.
In my judgment, the fact the national jobless rate reminded at 10.0% in December is the most significant and telling element of the entire report. The detail in this morning's report showed there were 929,000 "discouraged workers" who had given up looking for a job, up from 642,000 a year earlier. The bid "so what" factor behind all this mumbo-jumbo is significant. If these people were still actively looking for work and had been counted as unemployed in the latest survey period -- the national jobless rate would have been 10.4% or higher. Since the current story from the labor sector strongly suggests employment growth will remain puny for sometime yet to come - today's job report is supportive of steady to potentially lower mortgage interest rates.
Looking ahead to next week -- Uncle Sam will take center stage from Monday to Thursday. He'll be in the credit markets looking to borrow roughly $100 billion in the form of inflation index 10-year notes on Monday, 3-year notes on Tuesday, 10-year notes on Wednesday and 30-year bonds on Thursday. Wednesday's 10-year notes and Thursday's 30-year bonds will likely exert the most potential upward pressure on mortgage rates.
In terms of macro-economic data Thursday's December Retail Sales figures and Friday's December Consumer Price Index will attract the most attention from mortgage investors. Both reports are expected to be mortgage market neutral.
The majority of economists had projected a headline payroll loss in December of 8,000. These same economists are now blaming their wide miss on December job market conditions on the weather - pointing out two major storms blanked the Northeast and Midwest during the data survey period.
In my judgment, the fact the national jobless rate reminded at 10.0% in December is the most significant and telling element of the entire report. The detail in this morning's report showed there were 929,000 "discouraged workers" who had given up looking for a job, up from 642,000 a year earlier. The bid "so what" factor behind all this mumbo-jumbo is significant. If these people were still actively looking for work and had been counted as unemployed in the latest survey period -- the national jobless rate would have been 10.4% or higher. Since the current story from the labor sector strongly suggests employment growth will remain puny for sometime yet to come - today's job report is supportive of steady to potentially lower mortgage interest rates.
Looking ahead to next week -- Uncle Sam will take center stage from Monday to Thursday. He'll be in the credit markets looking to borrow roughly $100 billion in the form of inflation index 10-year notes on Monday, 3-year notes on Tuesday, 10-year notes on Wednesday and 30-year bonds on Thursday. Wednesday's 10-year notes and Thursday's 30-year bonds will likely exert the most potential upward pressure on mortgage rates.
In terms of macro-economic data Thursday's December Retail Sales figures and Friday's December Consumer Price Index will attract the most attention from mortgage investors. Both reports are expected to be mortgage market neutral.
Wednesday, January 6, 2010
Wednesday, January 6, 2010
Different day - same story.
Looming on the horizon is Friday's December nonfarm payroll report, which some expect to show the first month of job growth since December 2007 - a condition should it prevail -- will almost surely push mortgage interest rates higher and prices lower.
Other mortgage investors are absolutely convinced the December sell-off in the mortgage market pushed rates too high and prices too low - a condition that suggests these high-quality assets can currently be acquired at "garage-sale" prices.
One of these two groups of mortgage investors is headed for a spanking behind the financial woodshed - and the other will likely be calling random people in the phonebook to brag about their financial market genius.
Overhanging all of them is the fact that the direct government buying of mortgage-backed securities that drove 30-year fixed rate mortgages to historical lows in 2009 - is coming to an end in less than 90 days. To get to their total purchase authorization of $1.25 trillion by March 31st - the Fed will need to buy about $8.5 billion a week in agency eligible mortgage-backed securities. The "so what" factor here is significant. From mid-November through mid-December the Fed's weekly net purchases of these securities totaled $16.5 billion - meaning Uncle Sam, the benevolent benefactor of the mortgage industry, is rapidly morphing from the most dominant player in the market into nothing more than a ghost of days gone by.
As I write, market chatter regarding the possibility the Fed will choose to expand and/or extend their direct mortgage-backed security purchase program is nothing more than just idle talk.
The probabilities are high that the rotation from a big-buyer spending taxpayers' money to a buyer spending private capital will initially result in higher mortgage interest rates and lower prices - no matter what the prevailing macro-economic data happens to be.
Bear-in-mind fixed income investors (those that actually buy and hold the mortgage-backed securities created from the loans you originate) live in the future - not the present. Trading decisions these investors make on a daily basis are largely predicated on market conditions they expect to prevail in the weeks and months yet to come - not the market conditions that may happen to develop between 10:00 a.m. ET and the close of trading for the day.
In other news of the day the Mortgage Bankers said their index of mortgage applications for the week ended January 1st rose 0.5% from the previous week. The purchase application component of the index was up 3.6% while refinance loan requests fell 1.6%. Refinance applications accounted for 68.2% of all loan requests during the reporting period.
Tuesday, January 5, 2010
Tuesday, January 5, 2010
Looming on the horizon is Friday's December nonfarm payroll report, which some expect to show the first month of job growth since December 2007 - a condition should it prevail -- will almost surely push mortgage interest rates higher and prices lower.
Other mortgage investors are absolutely convinced the December sell-off in the mortgage market pushed rates too high and prices too low - a condition that suggests these high-quality assets can currently be acquired at "garage-sale" prices.
The capital market is an arena in which losers pay winners every day. One of these two groups of mortgage investors is headed for a spanking in the financial woodshed - and the other will likely be calling random people in the phonebook to brag about their financial market genius.
Overhanging all of them is the fact that the direct government buying of mortgage-backed securities that drove 30-year fixed rate mortgages to historical lows in 2009 - is coming to an end in less than 90 days. To get to their total purchase authorization of $1.25 trillion by March 31st - the Fed will need to buy about $8.5 billion a week in agency eligible mortgage-backed securities. The "so what" factor here is significant. From mid-November through mid-December the Fed's weekly net purchases of these securities totaled $16.5 billion - meaning Uncle Sam, the benevolent benefactor of the mortgage industry, is rapidly morphing from the most dominant player in the market into nothing more than a ghost of days gone by.
The probabilities are high that the rotation from a big-buyer spending taxpayers' money to a buyer spending private capital will initially result in higher mortgage interest rates and lower prices - no matter what the activity levels in the manufacturing sector happen to be or whether the economy is creating or destroying jobs.
Bear-in-mind fixed income investors (those that actually buy and hold the mortgage-backed securities created from the loans you originate) live in the future - not the present. Trading decisions these investors make on a daily basis are largely predicated on market conditions they expect to prevail in the weeks and months yet to come - not the market conditions that may happen to develop between 10:00 a.m. ET and the close of trading for the day.
Monday, January 4, 2010
Monday, January 4, 2010
HAPPY NEW YEAR!!
Mortgage investors will likely spend the majority of the week jockeying for position in front of Friday's much anticipated December Nonfarm Payroll report. Today's slightly higher than expected activity levels in the manufacturing sector as measured by the
Traders seem to be almost equally divided with respect to their views of what Friday's job report will reveal.
One group of traders believes for the first time in two years, the economy may have experienced a month in which more jobs were created than were destroyed. If Friday's December employment report shows positive growth in headline payrolls it will provide a powerful jolt to what has otherwise been a very sluggish recovery - and that's a condition almost certain to put notable upward pressure on mortgage interest rates.
The opposing group of traders look for businesses to take their sweet time resuming hiring, if for not other reason than the uncertainty surrounding the impact of heath care, taxation and regulation issues still being debated in Congress. Even if businesses are ready to rehire sooner, this group of traders believe fixing the labor market will not be a quick process. Since the start of the recession (estimated as late 2006 early 2007 -- depending on which economist you happen to talk to) about 7.9 million jobs have been lost. To put that number in perspective, there were 2.5 million jobs created in 2005, which was at the peak of the housing boom and a year in which the economy grew at a healthy 3.1% pace. Few economists expect that level of sustained economic growth over the next few years - and even if economic growth accelerated at that rate - it would take at least three years to recoup the lost jobs.
The sharp rise in mortgage interest rates over the last two-weeks of the year was largely created by conservative risk managers choosing to take a "safe-rather-than-sorry" approach to Friday's first major economic report of the new year -- by pricing-in expectations for the first increase in payroll growth since December 2007. Should this outlook prove too optimistic -- with December payrolls posting a loss of 20,000 or more -- a fairly large number of market participants will get caught leaning in the wrong direction - probably resulting in a relatively short-lived but nonetheless welcomed move to fractionally lower mortgage interest rates and higher prices.
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