Mortgage interest rates got a nice little nudge to lower levels as investors reacted to this morning's sharply lower than anticipated reading for September consumer confidence. This measure of consumer sentiment posted its third decline in the last four months and easily wiped-out the August gain.
The size of the decline in consumer confidence has increased concerns among credit market participants that the U.S. may yet face the threat of a double dip recession. The data clearly indicates consumers remain depressed about their financial prospects and view current economic conditions as inescapably recessionary.
The good news here is that this data is definitely supportive of steady to perhaps fractionally lower mortgage interest rates. The bad news is as long as consumers remain in their foxholes with their helmets on and their heads down -- the number of prospective borrowers interested and/or capable of initiating transactions featuring record all-time low mortgage rates will continue to shrink.
Investors will now turn their attention to this afternoon's five-year Treasury auction, the second of three Treasury note sales scheduled for this week.
Most analysts are anticipating good foreign participation at this afternoon's $35 billion 5-year note sale, particularly from Japan's central bank as they move to recycle their recent currency intervention reserves into dollar denominated assets like Treasury obligations and agency eligible mortgage-backed securities. Renewed financial concerns regarding the fiscal viability of Portugal and Ireland will likely serve as a catalyst to drive capital into the comparatively safe-harbor of U.S. government debt as well.
A well bid 5-year note auction will tend to be supportive of steady to perhaps fractionally lower mortgage interest rates. The auction will conclude at 1:00 p.m. ET -
Tuesday, September 28, 2010
Monday, September 27, 2010
Monday, September 27, 2010
With nothing in the way of market moving economic data available today, this afternoon's two-year Treasury auction, the first of three Treasury note sales this week, will be the most prominent feature influencing the trend trajectory of mortgage interest rates over the course of this trading session.
Most analysts are anticipating good foreign participation at this afternoon's $36 billion 2-year note sale, particularly from Japan's central bank as they move to recycle their recent currency intervention reserves into dollar denominated assets like Treasury obligations and agency eligible mortgage-backed securities. Renewed financial concerns regarding the fiscal viability of Portugal and Ireland will likely serve as a catalyst to drive capital into the comparatively safe-harbor of U.S. government debt as well.
A well bid 2-year note auction will tend to be supportive of steady to perhaps fractionally lower mortgage interest rates.
Most analysts are anticipating good foreign participation at this afternoon's $36 billion 2-year note sale, particularly from Japan's central bank as they move to recycle their recent currency intervention reserves into dollar denominated assets like Treasury obligations and agency eligible mortgage-backed securities. Renewed financial concerns regarding the fiscal viability of Portugal and Ireland will likely serve as a catalyst to drive capital into the comparatively safe-harbor of U.S. government debt as well.
A well bid 2-year note auction will tend to be supportive of steady to perhaps fractionally lower mortgage interest rates.
Friday, September 24, 2010
Friday, September 24, 2010
In the first of two economic reports released this morning the Commerce Department said orders for durable goods (items manufacturered to last three years or more) fell 1.3% in August, reflecting a sharp decline in orders for transportation equipment. But a barometer of capital spending by businesses rose a surprisingly strong 4.1% -- igniting a rally in the stock market and producing a sell-off in the mortgage market as investors scale-backed their outlook for a "double-dip" recession before the year is out.
The Commerce Department's second report of the day showed new home sales were flat in August at the second lowest level on record. Compared with August 2009, new home sales are down 28.9%. Mortgage investors gave this data little more than a passing glance since all market participants are keenly aware a recovery in the housing sector will not begin until joblessness and sagging consumer confidence show sustained multi-month improvement.
Looking ahead to next week Uncle Sam will be in the credit markets from Monday through Wednesday conducting a three-part auction featuring 2-, 5-, and 7-year notes. Thursday's weekly initial jobless claims data and Friday's Institute of Supply Management's Manufacturing Index will dominate the economic calendar.
Mortgage investors are currently expecting weekly claims to drift 7,000 lower while the ISM's manufacturing index hovers at 54.5. Should claims fall more strongly and/or should the manufacturing index show a reading greater than 54.5 look for upward pressure on mortgage interest rates to increase.
Numbers that match or fall below the consensus estimate for one or both of these reports will tend to support steady to perhaps fractionally lower mortgage interest rates. Consider the latter to be the high probability outcome scenario.
The Commerce Department's second report of the day showed new home sales were flat in August at the second lowest level on record. Compared with August 2009, new home sales are down 28.9%. Mortgage investors gave this data little more than a passing glance since all market participants are keenly aware a recovery in the housing sector will not begin until joblessness and sagging consumer confidence show sustained multi-month improvement.
Looking ahead to next week Uncle Sam will be in the credit markets from Monday through Wednesday conducting a three-part auction featuring 2-, 5-, and 7-year notes. Thursday's weekly initial jobless claims data and Friday's Institute of Supply Management's Manufacturing Index will dominate the economic calendar.
Mortgage investors are currently expecting weekly claims to drift 7,000 lower while the ISM's manufacturing index hovers at 54.5. Should claims fall more strongly and/or should the manufacturing index show a reading greater than 54.5 look for upward pressure on mortgage interest rates to increase.
Numbers that match or fall below the consensus estimate for one or both of these reports will tend to support steady to perhaps fractionally lower mortgage interest rates. Consider the latter to be the high probability outcome scenario.
Thursday, September 23, 2010
Thursday, September 23, 2010
Early this morning the Labor Department released their initial jobless claims data for the week ended September 18th. The government says the number of people standing in line to collect first-time jobless benefits grew by an unexpected 12,000 last week. The total number of claimants receiving benefits declined, while those getting extended payments rose.
The latest increase in the initial weekly jobless claims data puts an end to the string of two straight weekly drops. Looking through the weekly fluctuations, it becomes readily apparent that weekly jobless claims figures have changed little over the course of the year; the four-week moving average of claims is only 1,000 higher than its mark for the first full week of 2010.
In a nut-shell the story here is that the labor market will remain weak until demand for American goods and services accelerates to the point that business managers deem it once again financially feasible to hang out the "job opening" signs.
As all the saber rattling and political posturing of the coming months intensifies -- don't lost sight of the fact that while the Fed can trot-out another massive "quantitative easing" program to reduce the disinflation threat - the lower interest rates the central bank will attempt to create will do little to directly affect employment. Improved employment prospects depend on business confidence -- which in turn depends largely on supportive fiscal and regulatory initiatives - both of which happen to be the direct domain of Congress. The results of mid-term elections and the following congressional legislative action (or lack thereof) will have a far larger and potentially more immediate impact on the nation's labor sector than will any "quantitative easing" strategy the Fed might employ.
In other economic news of the day -- the National Association of Realtors reported August Existing Home Sales rose in August. That is the good news. The bad news is that existing home sales rose to the second-lowest level on record. Purchases of existing houses climbed to a 4.13 million annual pace, second only to July's 3.84 million rate. Job recovery continues to be the primary key to housing recovery.
These two reports, initial weekly jobless claims and existing home sales, simply added a little color to mortgage investors' developing picture of an economy slowly limping away from the longest and deepest recession since the end of World War II.
The latest increase in the initial weekly jobless claims data puts an end to the string of two straight weekly drops. Looking through the weekly fluctuations, it becomes readily apparent that weekly jobless claims figures have changed little over the course of the year; the four-week moving average of claims is only 1,000 higher than its mark for the first full week of 2010.
In a nut-shell the story here is that the labor market will remain weak until demand for American goods and services accelerates to the point that business managers deem it once again financially feasible to hang out the "job opening" signs.
As all the saber rattling and political posturing of the coming months intensifies -- don't lost sight of the fact that while the Fed can trot-out another massive "quantitative easing" program to reduce the disinflation threat - the lower interest rates the central bank will attempt to create will do little to directly affect employment. Improved employment prospects depend on business confidence -- which in turn depends largely on supportive fiscal and regulatory initiatives - both of which happen to be the direct domain of Congress. The results of mid-term elections and the following congressional legislative action (or lack thereof) will have a far larger and potentially more immediate impact on the nation's labor sector than will any "quantitative easing" strategy the Fed might employ.
In other economic news of the day -- the National Association of Realtors reported August Existing Home Sales rose in August. That is the good news. The bad news is that existing home sales rose to the second-lowest level on record. Purchases of existing houses climbed to a 4.13 million annual pace, second only to July's 3.84 million rate. Job recovery continues to be the primary key to housing recovery.
These two reports, initial weekly jobless claims and existing home sales, simply added a little color to mortgage investors' developing picture of an economy slowly limping away from the longest and deepest recession since the end of World War II.
Wednesday, September 22, 2010
Wednesday, September 22, 2010
It is all about perception.
Yesterday the majority of investors analyzing the Federal Reserve's post-meeting policy statement came to the collective conclusion the text and tone of the document indicated the day is closer that the nation's central bank will launch a new "quantitative easing" campaign featuring the aggressive open-market purchases of Treasury securities. The "quantitative easing" campaign, should it become a reality, will be made in an all-out effort to bolster the economy. Based solely on what they perceived the Fed's post-meeting statement to say -- euphoria swept the credit markets yesterday afternoon helping to propel mortgage note rates back down toward levels last seen just after the Labor Day Holiday break.
I don't want to rain on anybody's parade -- but there are a couple of points related to yesterday's Fed statement I think prudent pipeline risk managers should be aware of. (1) The Fed has made no promise to buy even one more dollar's worth of Treasury debt. They did imply that a weak economy could lead to further direct purchases of Treasury debt obligations if needed to support the economic recovery and to spur an uptick in the pace of inflation over time. (2) If the Fed does indeed initiate a new "quantitative endeavor" and is successful in achieving its objectives -- one of the residual credit market effects will be a notable increase in the upward pressure on mortgage note rates.
I also think it is worth noting that just prior to the conclusion of yesterday's Federal Open Market Committee meeting, the National Bureau of Economic Research, the largest economic research organization in the United States and the entity tasked with determining the economic cycles of recession and expansion, announced that according to their data, the worst recession since the 1930's ended in June 2009.
Look for strong debate to develop over the next couple of weeks focused on just how effective further direct Fed debt purchases will likely be at this juncture in the economic cycle. One of the center-point questions of the upcoming debate will be, "Is the benefit of expanding the Fed's $1 trillion dollar existing investment portfolio really worth the erosion of global confidence in the credit worthiness of the United States - not to mention the domestic inflation pressures another round of unrestrained dollar printing could ignite?" I don't pretend to have the answer to these questions -- but I certainly understand the stakes are high in terms of what, if anything, the Fed actually chooses to do in terms of providing further "accommodations" for economic growth. I sense this one of those situations where you have to be careful what you wish for.
Speaking of interest rates and mortgage loan demand - earlier this morning the Mortgage Bankers of America released their mortgage application index for the week ended September 18th. The index showed that even though mortgage interest rates matched their lowest level in 20-years during the reporting period - home loan demand fell for the third consecutive week. The aggregate demand for both purchase and refinance applications dropped by 1.4% with purchase demand down 3.3% and refinance requests off 0.9%. The clear story coming from the housing sector is that lower mortgage interest rates don't stimulate activity - the housing sector is driven by job creation. Until/unless the story improves significant in the labor sector - dramatically lower mortgage interest rates are not likely going to make a notable difference in home loan demand.
Yesterday the majority of investors analyzing the Federal Reserve's post-meeting policy statement came to the collective conclusion the text and tone of the document indicated the day is closer that the nation's central bank will launch a new "quantitative easing" campaign featuring the aggressive open-market purchases of Treasury securities. The "quantitative easing" campaign, should it become a reality, will be made in an all-out effort to bolster the economy. Based solely on what they perceived the Fed's post-meeting statement to say -- euphoria swept the credit markets yesterday afternoon helping to propel mortgage note rates back down toward levels last seen just after the Labor Day Holiday break.
I don't want to rain on anybody's parade -- but there are a couple of points related to yesterday's Fed statement I think prudent pipeline risk managers should be aware of. (1) The Fed has made no promise to buy even one more dollar's worth of Treasury debt. They did imply that a weak economy could lead to further direct purchases of Treasury debt obligations if needed to support the economic recovery and to spur an uptick in the pace of inflation over time. (2) If the Fed does indeed initiate a new "quantitative endeavor" and is successful in achieving its objectives -- one of the residual credit market effects will be a notable increase in the upward pressure on mortgage note rates.
I also think it is worth noting that just prior to the conclusion of yesterday's Federal Open Market Committee meeting, the National Bureau of Economic Research, the largest economic research organization in the United States and the entity tasked with determining the economic cycles of recession and expansion, announced that according to their data, the worst recession since the 1930's ended in June 2009.
Look for strong debate to develop over the next couple of weeks focused on just how effective further direct Fed debt purchases will likely be at this juncture in the economic cycle. One of the center-point questions of the upcoming debate will be, "Is the benefit of expanding the Fed's $1 trillion dollar existing investment portfolio really worth the erosion of global confidence in the credit worthiness of the United States - not to mention the domestic inflation pressures another round of unrestrained dollar printing could ignite?" I don't pretend to have the answer to these questions -- but I certainly understand the stakes are high in terms of what, if anything, the Fed actually chooses to do in terms of providing further "accommodations" for economic growth. I sense this one of those situations where you have to be careful what you wish for.
Speaking of interest rates and mortgage loan demand - earlier this morning the Mortgage Bankers of America released their mortgage application index for the week ended September 18th. The index showed that even though mortgage interest rates matched their lowest level in 20-years during the reporting period - home loan demand fell for the third consecutive week. The aggregate demand for both purchase and refinance applications dropped by 1.4% with purchase demand down 3.3% and refinance requests off 0.9%. The clear story coming from the housing sector is that lower mortgage interest rates don't stimulate activity - the housing sector is driven by job creation. Until/unless the story improves significant in the labor sector - dramatically lower mortgage interest rates are not likely going to make a notable difference in home loan demand.
Tuesday, September 21, 2010
Tuesday, September 21, 2010
This week's trading action in the mortgage market will be largely driven by the message the Federal Open Market Committee sends in its post-meeting statement this afternoon (2:15 p.m. ET).
Market participants around the globe will tune-in to hear what the Fed has to say about the current level of benchmark short-term interest rates, the pace of economic recovery, the job growth outlook and what, if anything, the nation's central bankers intend to do should economic conditions worsen.
In the end the Fed is unlikely to provide anything new and substantive for credit market participants to chew-on. If this assessment proves accurate, look for investors to register their disappointment by pushing mortgage rates slightly higher.
I'll provide an update to this commentary as soon as possible following the conclusion of today's meeting.
Earlier this morning the Census Bureau released the August Housing Starts and Building Permit figures. Total housing starts increased 10.5% last month - its strongest month-over-month gain in nearly a year. Building permits did not fare nearly as well - posting a month-over-month gain of 1.8%. Even with the outsized August gain, housing starts remain below 600,000 annualized units - a benchmark that they have only breached briefly in the first quarter of the year. Until/unless the labor sector shows signs of sustained improvement - homebuilding activity will undoubtedly remain at depressed levels. Mortgage investors gave this data nothing more than a disinterested glance.
Market participants around the globe will tune-in to hear what the Fed has to say about the current level of benchmark short-term interest rates, the pace of economic recovery, the job growth outlook and what, if anything, the nation's central bankers intend to do should economic conditions worsen.
In the end the Fed is unlikely to provide anything new and substantive for credit market participants to chew-on. If this assessment proves accurate, look for investors to register their disappointment by pushing mortgage rates slightly higher.
I'll provide an update to this commentary as soon as possible following the conclusion of today's meeting.
Earlier this morning the Census Bureau released the August Housing Starts and Building Permit figures. Total housing starts increased 10.5% last month - its strongest month-over-month gain in nearly a year. Building permits did not fare nearly as well - posting a month-over-month gain of 1.8%. Even with the outsized August gain, housing starts remain below 600,000 annualized units - a benchmark that they have only breached briefly in the first quarter of the year. Until/unless the labor sector shows signs of sustained improvement - homebuilding activity will undoubtedly remain at depressed levels. Mortgage investors gave this data nothing more than a disinterested glance.
Monday, September 20, 2010
Monday, September 20, 2010
This week's trading action in the mortgage market will be largely driven by the message the Federal Open Market Committee sends in its post-meeting statement tomorrow afternoon (2:15 p.m. ET).
Market participants around the globe will tune-in to hear what the Fed has to say about the current level of benchmark short-term interest rates, the pace of economic recovery, the job growth outlook and what, if anything, the nation's central bankers intend to do should economic conditions worsen.
In the end the Fed is unlikely to provide anything new and substantive for credit market participants to chew-on. If this assessment proves accurate, look for investors to register their disappointment by pushing mortgage rates slightly higher. Any initial move to higher rates will likely be short-lived (by a day or two) as it dawns on the majority of market participants that additional support for steady to lower interest rates from the Fed is virtually inevitable as the economy continues to show little sign of gaining any traction in terms of job creation and overall growth.
Market participants around the globe will tune-in to hear what the Fed has to say about the current level of benchmark short-term interest rates, the pace of economic recovery, the job growth outlook and what, if anything, the nation's central bankers intend to do should economic conditions worsen.
In the end the Fed is unlikely to provide anything new and substantive for credit market participants to chew-on. If this assessment proves accurate, look for investors to register their disappointment by pushing mortgage rates slightly higher. Any initial move to higher rates will likely be short-lived (by a day or two) as it dawns on the majority of market participants that additional support for steady to lower interest rates from the Fed is virtually inevitable as the economy continues to show little sign of gaining any traction in terms of job creation and overall growth.
Friday, September 17, 2010
Friday, September 17, 2010
Mortgage investors are putting the finishing touches on their risk management positions this morning before largely slipping out early this afternoon for what promises to be a very nice last weekend of summer for much of the country.
The Labor Department released its August Consumer Price Index data earlier this morning - and mortgage investors yawned. The headline measure of inflation at the consumer level showed a gain of 0.3% last month - slightly stronger than expected - but that gain was offset by the unexpectedly flat reading for the more important core component of the index (a value which excludes volatile food and energy costs). The year-over-year rate of both headline and core consumer price inflation remains stable at 1.0% -- a condition that sharply reduces the likelihood of a pronounced and sustained upward move for mortgage interest rates - at least in the near-term.
Looking ahead to next week the Federal Open Market Committee will huddle for a one-day monetary policy strategy discussion on Tuesday, September 17th. Central bankers will weigh their diverging views on the how the economy is likely to perform next year and will debate their respective theories on how best to re-fire the nation's economic engines. When they release their post-meeting statement at 2:15 p.m. ET it will likely reveal the Fed chose to remain on the sidelines and watch a bit longer before taking any form of action. Such an outcome is already priced into the mortgage market -- so if this assessment proves accurate -- the Fed meeting will be a nonevent with respect to the current trend trajectory of mortgage interest rates.
News from the housing sector will dominate the balance of next week's economic calendar - ranging from Tuesday morning's August Housings Start and Building Permit numbers through the existing and new home sales data on Thursday and Friday respectively. The collective story is expected be one of almost imperceptible improvement - a condition not likely to cause mortgage investors to aggressively push mortgage interest rates notably higher.
For the remainder of the day look for mortgage interest rates to take their directional cue from trading action in the stocks markets. Higher stock prices will tend to draw mortgage interest rates fractionally higher. With mortgage note rates currently floating either at, or within a breath of their all-time historical lows, falling stock prices will not likely serve to push these note rates appreciably lower - though mortgage investor pricing may improve a little.
The Labor Department released its August Consumer Price Index data earlier this morning - and mortgage investors yawned. The headline measure of inflation at the consumer level showed a gain of 0.3% last month - slightly stronger than expected - but that gain was offset by the unexpectedly flat reading for the more important core component of the index (a value which excludes volatile food and energy costs). The year-over-year rate of both headline and core consumer price inflation remains stable at 1.0% -- a condition that sharply reduces the likelihood of a pronounced and sustained upward move for mortgage interest rates - at least in the near-term.
Looking ahead to next week the Federal Open Market Committee will huddle for a one-day monetary policy strategy discussion on Tuesday, September 17th. Central bankers will weigh their diverging views on the how the economy is likely to perform next year and will debate their respective theories on how best to re-fire the nation's economic engines. When they release their post-meeting statement at 2:15 p.m. ET it will likely reveal the Fed chose to remain on the sidelines and watch a bit longer before taking any form of action. Such an outcome is already priced into the mortgage market -- so if this assessment proves accurate -- the Fed meeting will be a nonevent with respect to the current trend trajectory of mortgage interest rates.
News from the housing sector will dominate the balance of next week's economic calendar - ranging from Tuesday morning's August Housings Start and Building Permit numbers through the existing and new home sales data on Thursday and Friday respectively. The collective story is expected be one of almost imperceptible improvement - a condition not likely to cause mortgage investors to aggressively push mortgage interest rates notably higher.
For the remainder of the day look for mortgage interest rates to take their directional cue from trading action in the stocks markets. Higher stock prices will tend to draw mortgage interest rates fractionally higher. With mortgage note rates currently floating either at, or within a breath of their all-time historical lows, falling stock prices will not likely serve to push these note rates appreciably lower - though mortgage investor pricing may improve a little.
Wednesday, September 15, 2010
Wednesday, September 15, 2010
Trading activity in the mortgage market this morning appears to be stuck in neutral - volume is light and directionless.
This morning's earlier release of the "as-expected" August Industrial Production and Capacity Utilization numbers together with a slightly softer-than-anticipated measure of manufacturing activity in the New York Federal Reserve district drew nothing more than a passing glance from traders.
Overnight Japan moved aggressively to sell yen in the international currency markets in an attempt to jump start its economic engines. The news garnered some early attention from market participants -- but when it became apparent that no other countries were going to join Japan in their first currency intervention endeavor in more than six years -- mortgage investors were quick to shrug the whole thing off.
Looking ahead to the balance of the week most analysts believe the release of tomorrow morning's August Producer Price Index followed on Friday by the August Consumer Price Index will prove of little help to investors attempting to plot the forward looking trajectory of the economy. If that assessment proves accurate, look for mortgage interest rates to generally take their directional cues from trading action in the stocks markets.
Higher stock prices will tend to draw mortgage interest rates fractionally higher. With mortgage note rates currently floating either at, or within a breath of their all-time historical lows, falling stock prices will not likely serve to push these note rates appreciably lower - though mortgage investor pricing may improve a little.
There are reasons to believe the Dow will probably put in a multi-day high between 10550 and 10650 before the close of trading on Friday.
This morning's earlier release of the "as-expected" August Industrial Production and Capacity Utilization numbers together with a slightly softer-than-anticipated measure of manufacturing activity in the New York Federal Reserve district drew nothing more than a passing glance from traders.
Overnight Japan moved aggressively to sell yen in the international currency markets in an attempt to jump start its economic engines. The news garnered some early attention from market participants -- but when it became apparent that no other countries were going to join Japan in their first currency intervention endeavor in more than six years -- mortgage investors were quick to shrug the whole thing off.
Looking ahead to the balance of the week most analysts believe the release of tomorrow morning's August Producer Price Index followed on Friday by the August Consumer Price Index will prove of little help to investors attempting to plot the forward looking trajectory of the economy. If that assessment proves accurate, look for mortgage interest rates to generally take their directional cues from trading action in the stocks markets.
Higher stock prices will tend to draw mortgage interest rates fractionally higher. With mortgage note rates currently floating either at, or within a breath of their all-time historical lows, falling stock prices will not likely serve to push these note rates appreciably lower - though mortgage investor pricing may improve a little.
There are reasons to believe the Dow will probably put in a multi-day high between 10550 and 10650 before the close of trading on Friday.
Monday, September 13, 2010
Monday, September 13, 2010
The credit market is undergoing a technically driven adjustment this morning as last week's $67 billion of Treasury obligations and the biggest supply of long-dated corporate debt issues since last March are redistributed by primary dealers and big-money center banks. Risk management strategies established prior to the deluge of supply washed into the credit markets last week are being reversed this morning as well - contributing in part to the early rally in the Treasury and mortgage-backed securities markets.
The mood of mortgage investors is changing as they sweat out their recent security purchases made at, or very near all-time historically high prices. From this point forward economic news that proves to be "less-bad" than expected will likely produce a much stronger move by investors to push prices down and note rates higher as they scramble to avoid the financial pain that will be inflicted on those caught holding a portfolio of low note-rate mortgages should the macro-economic news show potential improvement.
The slightly elevated August Retail Sales figures expected from the Commerce Department at 8:30 a.m. ET tomorrow have already been priced into the mortgage market. The modest improvement in the ex. auto component of this report was likely driven almost exclusively by back-to-school discounts from businesses and the impact of tax-free holidays in seventeen states designed to support retail sales.
Mortgage investors will probably view this data as too distorted to provide a real sense of the current level of domestic consumerism. If so, this report will not likely influence the direction of mortgage interest rates one way or the other tomorrow. In the unlikely event the August Retail Sales figures exceed the consensus estimate -- look for investors to respond by pushing prices lower and note rates higher before the end of Tuesday's trading session.
The mood of mortgage investors is changing as they sweat out their recent security purchases made at, or very near all-time historically high prices. From this point forward economic news that proves to be "less-bad" than expected will likely produce a much stronger move by investors to push prices down and note rates higher as they scramble to avoid the financial pain that will be inflicted on those caught holding a portfolio of low note-rate mortgages should the macro-economic news show potential improvement.
The slightly elevated August Retail Sales figures expected from the Commerce Department at 8:30 a.m. ET tomorrow have already been priced into the mortgage market. The modest improvement in the ex. auto component of this report was likely driven almost exclusively by back-to-school discounts from businesses and the impact of tax-free holidays in seventeen states designed to support retail sales.
Mortgage investors will probably view this data as too distorted to provide a real sense of the current level of domestic consumerism. If so, this report will not likely influence the direction of mortgage interest rates one way or the other tomorrow. In the unlikely event the August Retail Sales figures exceed the consensus estimate -- look for investors to respond by pushing prices lower and note rates higher before the end of Tuesday's trading session.
Friday, September 10, 2010
Friday, September 10, 2010
Credit markets are suffering a bad case of indigestion this morning after investors were called on to gobble up $67 billion of government debt together with a record setting supply of corporate debt issues.
The selling pressure we are experiencing today appears to be driven by two general influences; (1) the temporary consequences of short-term technical factors rather than a major shift in investors' view of the broad economy, and (2) the impact of a number of traders taking the past two days off to celebrate the Jewish New Year with their families.
Buyers, particularly money managers and foreign central banks appear to be nibbling a little after prices of both Treasury debt obligations and agency eligible mortgage-backed securities have fallen for two consecutive days. The demand from these buyers so far this morning has only been sufficient to drive prices off of their intraday lows -- but still remains too soft to do much else.
Where we go from here will depend in part on next week's run of macro-economic data. Should Monday's July Retail Sales figures together with in inflation story contained in Thursday's July Producer Price Index and Friday's July Consumer Price Index exceed current expectations -- it will likely be difficult if not impossible for mortgage interest rates to move lower from current levels.
The selling pressure we are experiencing today appears to be driven by two general influences; (1) the temporary consequences of short-term technical factors rather than a major shift in investors' view of the broad economy, and (2) the impact of a number of traders taking the past two days off to celebrate the Jewish New Year with their families.
Buyers, particularly money managers and foreign central banks appear to be nibbling a little after prices of both Treasury debt obligations and agency eligible mortgage-backed securities have fallen for two consecutive days. The demand from these buyers so far this morning has only been sufficient to drive prices off of their intraday lows -- but still remains too soft to do much else.
Where we go from here will depend in part on next week's run of macro-economic data. Should Monday's July Retail Sales figures together with in inflation story contained in Thursday's July Producer Price Index and Friday's July Consumer Price Index exceed current expectations -- it will likely be difficult if not impossible for mortgage interest rates to move lower from current levels.
Thursday, September 9, 2010
Thursday, September 9, 2010
The Labor Department announced this morning that the number of Americans standing in line to file first time claims for unemployment benefits dropped by an unexpected 27,000 during the week ended September 4th. Last week's apparent improvement in the story from the labor sector sent mortgage investors racing to drop prices and nudge up note rates as a few rays of light filter though the darkness of their recessionary thinking.
As they say, the devil is in the detail - and in this case more than a few investors may choose to rethink their earlier decision to sell mortgage-backed securities aggressively this morning after they take the time to read the initial jobless claims report more closely.
It is worth noting that the Labor Department was quick to point out because of the Labor Day Holiday, nine states - including California - failed to file their jobless claims reports by the Labor Department's deadline - so government data wonks simply plugged in guesstimates for those non-reporting states. Once those states actually get around to filing their jobless numbers with the department - the jobless claims revisions over the next two weeks could be larger than normal.
Even assuming no revisions, 451,000 initial claims last week falls far short of indicating a recovery has begun in the labor market. Until/unless the total number of workers filing first-time unemployment claims drops below 400,000 on a multiple-week basis will it be reasonable to suggest the employment picture has brighten notably.
As it currently stands nearly 10 million people are drawing some form of unemployment benefit from the government - and several million more have exhausted their claims and now have no benefits at all. The "so what" factor here is dramatic - were the country gripped by a major recession and simply operating at what might be described as normal conditions - 2 million to 4 million people would be expected to be drawing unemployment insurance benefits. It is painfully obvious we still have a long way to go before the worst job market conditions since the Great Depression show notable signs of improvement.
Today's 30-year bond sale is the last of Uncle Sam's three debt auctions on tap this week. In light of this morning's better-than-expected news from the labor sector some market participants are concerned demand may not be strong enough to avoid the necessity of Uncle Sam "sweetening the pot" by accepting lower prices for these securities to attract the required capital.
There are some rather glaring reasons to believe these concerns are probably misplaced - at least this time around. Should today's auction be more aggressively bid than most observers now anticipate - the chance for a little "relief" rally this afternoon in the mortgage market will improve dramatically.
As they say, the devil is in the detail - and in this case more than a few investors may choose to rethink their earlier decision to sell mortgage-backed securities aggressively this morning after they take the time to read the initial jobless claims report more closely.
It is worth noting that the Labor Department was quick to point out because of the Labor Day Holiday, nine states - including California - failed to file their jobless claims reports by the Labor Department's deadline - so government data wonks simply plugged in guesstimates for those non-reporting states. Once those states actually get around to filing their jobless numbers with the department - the jobless claims revisions over the next two weeks could be larger than normal.
Even assuming no revisions, 451,000 initial claims last week falls far short of indicating a recovery has begun in the labor market. Until/unless the total number of workers filing first-time unemployment claims drops below 400,000 on a multiple-week basis will it be reasonable to suggest the employment picture has brighten notably.
As it currently stands nearly 10 million people are drawing some form of unemployment benefit from the government - and several million more have exhausted their claims and now have no benefits at all. The "so what" factor here is dramatic - were the country gripped by a major recession and simply operating at what might be described as normal conditions - 2 million to 4 million people would be expected to be drawing unemployment insurance benefits. It is painfully obvious we still have a long way to go before the worst job market conditions since the Great Depression show notable signs of improvement.
Today's 30-year bond sale is the last of Uncle Sam's three debt auctions on tap this week. In light of this morning's better-than-expected news from the labor sector some market participants are concerned demand may not be strong enough to avoid the necessity of Uncle Sam "sweetening the pot" by accepting lower prices for these securities to attract the required capital.
There are some rather glaring reasons to believe these concerns are probably misplaced - at least this time around. Should today's auction be more aggressively bid than most observers now anticipate - the chance for a little "relief" rally this afternoon in the mortgage market will improve dramatically.
Wednesday, September 8, 2010
Mortgage investors are standing around with their hands in their pockets this morning while they await the result of the Treasury Department's $21 billion 10-year note auction.
Today's 10-year note sale is the second of three auctions on tap this week. Some market participants are concerned demand may not be strong enough to avoid the necessity of Uncle Sam "sweetening the pot" by accepting lower prices for these securities to attract the required capital. Those concerns are probably misplaced - at least this time around.
The potential for a return of the sovereign European debt crisis to front page news is likely sufficient to drive significant amounts of international investors into the relative safe-haven of today's 10-year note offering. If so, this event will likely have little direct influence on the trend trajectory of mortgage interest rates. Should today's auction be more aggressively bid that most observers now anticipate - the chance for a little "relief" rally this afternoon in the mortgage market will improve dramatically. I am not necessarily expecting any developing rally in the mortgage market today to recover all of the slump we've experienced so far this morning (Fannie Mae 4.0% 30-year down 9/32nds as I write) but it might come close to cutting the price loss so far today in half. The 10-year note auction will conclude at 1:00 p.m. ET.
As they do every Wednesday, the Mortgage Bankers of America have release their mortgage loan application index for the week ended September 3rd. According to the MBA the overall number of mortgage applications drooped 1.5% -- with refinance requests slumping 3.1% while the purchase loan demand improved by 6.3%, marking the largest gain for this component of the overall index in more than three months. Refinance requests once again accounted for four out of every five loan applications for the week.
Today's 10-year note sale is the second of three auctions on tap this week. Some market participants are concerned demand may not be strong enough to avoid the necessity of Uncle Sam "sweetening the pot" by accepting lower prices for these securities to attract the required capital. Those concerns are probably misplaced - at least this time around.
The potential for a return of the sovereign European debt crisis to front page news is likely sufficient to drive significant amounts of international investors into the relative safe-haven of today's 10-year note offering. If so, this event will likely have little direct influence on the trend trajectory of mortgage interest rates. Should today's auction be more aggressively bid that most observers now anticipate - the chance for a little "relief" rally this afternoon in the mortgage market will improve dramatically. I am not necessarily expecting any developing rally in the mortgage market today to recover all of the slump we've experienced so far this morning (Fannie Mae 4.0% 30-year down 9/32nds as I write) but it might come close to cutting the price loss so far today in half. The 10-year note auction will conclude at 1:00 p.m. ET.
As they do every Wednesday, the Mortgage Bankers of America have release their mortgage loan application index for the week ended September 3rd. According to the MBA the overall number of mortgage applications drooped 1.5% -- with refinance requests slumping 3.1% while the purchase loan demand improved by 6.3%, marking the largest gain for this component of the overall index in more than three months. Refinance requests once again accounted for four out of every five loan applications for the week.
Tuesday, September 7, 2010
WEEK OF SEPTEMBER 6 - 10, 2010
Analysts, economist and other market participants will spend a large part of this holiday shortened week hotly debating whether mortgage interest rates established their long-term lows on the last day of August – or whether the mortgage market simply succumbed to a round of pre-holiday profit-taking that will soon fade -- and allow mortgage rates to move to fresh new all-time record lows.
Many mortgage investors remain generally unconvinced mortgage interest rates are destined for a strong move to higher levels -- only because there is nothing in the way of conclusive data to suggest the economy is shifting gears into a higher pace of overall growth. As you can plainly see below, there is nothing on this week’s economic calendar that will do much to clarify whether or not the economic porridge has become too warm to support lower mortgage rates. Until more meaningful economic data becomes available it is highly likely mortgage investors will look to trading activity in stock markets as a guide to determine interest rate levels.
From a technical perspective it appears the aggressive short-term rally in the Dow that began on Tuesday, August 31st will likely run out of momentum on or about Wednesday, September 8th somewhere in a price range between 10500 and 10550. If this assessment proves accurate, the sell-off in the stock that will follow will likely prove supportive of the short-term prospects for steady to perhaps fractionally lower mortgage interest rates. Play it by the numbers.
Now - to this week's activity in the market:
Mon. Sept. 6 The mortgage market is closed for the Labor Day Holiday
Tues. Sept. 7, 1:00 p.m. ET
Treasury sells $34 billion of 3-year notes The relatively short duration of these notes should draw strong participation levels from domestic as well as foreign investors. If so, this event will likely prove to be supportive of steady to perhaps fractionally lower mortgage interest rates.
Wed, Sept. 8, 1:00 p.m. ET
Treasury sells $24 billion of 10-year notes This auction will likely draw decent demand from buyers as technical indicators are flashing an increasing number of signs that a short-term price bottom may be near. If my assessment proves accurate, this event will tend to be supportive of steady to perhaps fractionally lower mortgage rates.
Wed. Sept. 8, 2:00 p.m. ET
Fed releases Beige Book This report, named for the color of its cover, is a compilation of economic data from all 12 Federal Reserve districts. The tone of these collected assessments will likely be more pessimistic than in prior periods as a noticeable slowdown in manufacturing activity grips large parts of the country. The chance any of the data in this report will surprise investors is small. Look for this data to be essentially "toothless" with respect to its impact on the trend trajectory of mortgage interest rates.
Thurs. Sept. 9, 8:30 a.m. ET
Initial jobless claims for the week ended 9/4 Down 2,000 to 470,000 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. Sept. 9, 1:00 p.m. ET
Treasury sells $16 billion of 30-year bonds The yield of this security has risen to a level (3.792%) that will likely draw strong demand from both domestic and global investors. If so, this event will tend to be supportive of the prospects for steady to perhaps fractionally lower mortgage interest rates.
Fri. Sept. 10, 10:00 a.m. ET
July Wholesale Inventories +0.4% vs. last +0.1% This old stale bit of macro-economic news will likely do nothing more than take up space on this week’s calendar.
Fri. Sept. 10
Before the close Most 30-year mortgage-backed securities "roll" to Oct. delivery This is nothing more than a standard monthly administrative function of the mortgage-backed securities market. The roughly 31.25 basis-point price reduction associated with this event in the mortgage-backed security market has already been factored into most of your investors’ rate sheets.
Many mortgage investors remain generally unconvinced mortgage interest rates are destined for a strong move to higher levels -- only because there is nothing in the way of conclusive data to suggest the economy is shifting gears into a higher pace of overall growth. As you can plainly see below, there is nothing on this week’s economic calendar that will do much to clarify whether or not the economic porridge has become too warm to support lower mortgage rates. Until more meaningful economic data becomes available it is highly likely mortgage investors will look to trading activity in stock markets as a guide to determine interest rate levels.
From a technical perspective it appears the aggressive short-term rally in the Dow that began on Tuesday, August 31st will likely run out of momentum on or about Wednesday, September 8th somewhere in a price range between 10500 and 10550. If this assessment proves accurate, the sell-off in the stock that will follow will likely prove supportive of the short-term prospects for steady to perhaps fractionally lower mortgage interest rates. Play it by the numbers.
Now - to this week's activity in the market:
Mon. Sept. 6 The mortgage market is closed for the Labor Day Holiday
Tues. Sept. 7, 1:00 p.m. ET
Treasury sells $34 billion of 3-year notes The relatively short duration of these notes should draw strong participation levels from domestic as well as foreign investors. If so, this event will likely prove to be supportive of steady to perhaps fractionally lower mortgage interest rates.
Wed, Sept. 8, 1:00 p.m. ET
Treasury sells $24 billion of 10-year notes This auction will likely draw decent demand from buyers as technical indicators are flashing an increasing number of signs that a short-term price bottom may be near. If my assessment proves accurate, this event will tend to be supportive of steady to perhaps fractionally lower mortgage rates.
Wed. Sept. 8, 2:00 p.m. ET
Fed releases Beige Book This report, named for the color of its cover, is a compilation of economic data from all 12 Federal Reserve districts. The tone of these collected assessments will likely be more pessimistic than in prior periods as a noticeable slowdown in manufacturing activity grips large parts of the country. The chance any of the data in this report will surprise investors is small. Look for this data to be essentially "toothless" with respect to its impact on the trend trajectory of mortgage interest rates.
Thurs. Sept. 9, 8:30 a.m. ET
Initial jobless claims for the week ended 9/4 Down 2,000 to 470,000 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. Sept. 9, 1:00 p.m. ET
Treasury sells $16 billion of 30-year bonds The yield of this security has risen to a level (3.792%) that will likely draw strong demand from both domestic and global investors. If so, this event will tend to be supportive of the prospects for steady to perhaps fractionally lower mortgage interest rates.
Fri. Sept. 10, 10:00 a.m. ET
July Wholesale Inventories +0.4% vs. last +0.1% This old stale bit of macro-economic news will likely do nothing more than take up space on this week’s calendar.
Fri. Sept. 10
Before the close Most 30-year mortgage-backed securities "roll" to Oct. delivery This is nothing more than a standard monthly administrative function of the mortgage-backed securities market. The roughly 31.25 basis-point price reduction associated with this event in the mortgage-backed security market has already been factored into most of your investors’ rate sheets.
Tuesday, September 7, 2010
Judging by the early trading action in the mortgage market this morning -- investors seem to be indicating they where perhaps a little too aggressive with their response to last Friday's better-than-expected news from the labor sector. The August nonfarm payroll was certainly not as bad as many had anticipated - but it certainly was not good enough to suggest a period of robust job growth is just around the corner.
Renewed concerns regarding the potential redevelopment of a sovereign debt crisis in Europe together with a change in investors' thinking regarding the domestic economy has created a "flight-to-quality" buying spree that is packing enough financial firepower to be supportive of steady to fractionally lower mortgage interest rates today.
This afternoon's $34 billion 3-year note sale to be conducted by the Treasury Department should draw solid demand given the current market environment - rendering the event essentially "toothless" with respect to its potential impact on the trend trajectory of mortgage interest rates.
Renewed concerns regarding the potential redevelopment of a sovereign debt crisis in Europe together with a change in investors' thinking regarding the domestic economy has created a "flight-to-quality" buying spree that is packing enough financial firepower to be supportive of steady to fractionally lower mortgage interest rates today.
This afternoon's $34 billion 3-year note sale to be conducted by the Treasury Department should draw solid demand given the current market environment - rendering the event essentially "toothless" with respect to its potential impact on the trend trajectory of mortgage interest rates.
Friday, September 3, 2010
Friday, September 3, 2010
As you are probably aware by now, the Labor Department reported this morning that the economy lost fewer jobs in August than most economists had been expecting. The government said overall employment fell by 54,000 jobs last month while the nation's jobless rate edged up to 9.6% from the 9.5% month earlier mark.
In addition, the data wonks at the Labor Department revised the June and July figures to show 123,000 fewer jobs were lost than previously reported. The detail of the report showed that the private sector continues to create less than 100,000 new jobs a month - a pace far too weak to absorb the millions of workers who have lost their jobs in the worst recession since the 1930's.
Even so, mortgage investors had priced in much darker news from the labor sector than the actual data revealed - creating the rather sharp sell-off in this morning's mortgage market.
Looking ahead to next week the holiday shortened calendar is completely void of anything but second tier economic data - but that doesn't mean it will be a completely boring trading period. Uncle Sam will be conducting a three-part auction from Tuesday through Thursday. He'll be selling 3- and 10-year notes together with a bundle of 30-year bonds. The 10-year note and 30-year bond auctions may require Uncle Sam to "sweeten-the-pot" a little bit to attract the required capital. If so "pot sweetening" process will likely put some slight upward pressure on mortgage interest rates.
In addition, the data wonks at the Labor Department revised the June and July figures to show 123,000 fewer jobs were lost than previously reported. The detail of the report showed that the private sector continues to create less than 100,000 new jobs a month - a pace far too weak to absorb the millions of workers who have lost their jobs in the worst recession since the 1930's.
Even so, mortgage investors had priced in much darker news from the labor sector than the actual data revealed - creating the rather sharp sell-off in this morning's mortgage market.
Looking ahead to next week the holiday shortened calendar is completely void of anything but second tier economic data - but that doesn't mean it will be a completely boring trading period. Uncle Sam will be conducting a three-part auction from Tuesday through Thursday. He'll be selling 3- and 10-year notes together with a bundle of 30-year bonds. The 10-year note and 30-year bond auctions may require Uncle Sam to "sweeten-the-pot" a little bit to attract the required capital. If so "pot sweetening" process will likely put some slight upward pressure on mortgage interest rates.
Thursday, September 2, 2010
Thursday, 90210
The stage is set - and the waiting has begun.
The mortgage market has had a terrific rally over the past month or so - with the contract rate for 30-year fixed-rate mortgages moving to a new all-time low of 4.36%. While historically low mortgage interest rates are good news for borrowers and mortgage originators - it is nervous news for mortgage investors since the price of the underlying mortgage-backed securities these investors are currently buying has just touched an all-time record high.
The growing for these buyers of mortgage-backed securities is that they will be caught holding the bag should the great rally in the mortgage market come to a sudden and screeching halt. In order for current buyers of mortgage securities to make a profit on their just completed transactions - by necessity they will have to find a ready, willing and able party eager to pay an even greater price for the same security.
If this "greater fool" is nowhere to be found - current mortgage investors will quickly realize they have made a major financial blunder -- and will immediately begin scrambling to unload their mortgage assets as quickly as possible to minimize the financial pain. The more selling pressure this activity creates -- the more desperate sellers will become and the harder it will be to find buyers - a scenario, should it develop, marked by surging note rates and plummeting rate sheet prices = higher rates!
Mortgage investors will be keenly attuned to tomorrow morning's August nonfarm payroll data. If the headline payroll number matches or exceeds the consensus estimate for a loss of 100,000 jobs -- and/or the national jobless rate creeps up 9.6% or higher -- mortgage investors will breathe a sigh of relief as mortgage interest rates trade steady to fractionally lower.
Should the August nonfarm payroll report indicate 75,000 or fewer jobs were lost during the month -- and/or should the national jobless rate post a reading of 9.5% or lower -- the race for the market exists will be on - with mortgage interest rates moving higher and prices slumping sharply lower. This latter scenario carries a lower probability of actually occurring - though not so low that it can be discounted completely. Be ready.
AND historically a Friday going into a three day holiday weekend spells higher rates!!
The mortgage market has had a terrific rally over the past month or so - with the contract rate for 30-year fixed-rate mortgages moving to a new all-time low of 4.36%. While historically low mortgage interest rates are good news for borrowers and mortgage originators - it is nervous news for mortgage investors since the price of the underlying mortgage-backed securities these investors are currently buying has just touched an all-time record high.
The growing for these buyers of mortgage-backed securities is that they will be caught holding the bag should the great rally in the mortgage market come to a sudden and screeching halt. In order for current buyers of mortgage securities to make a profit on their just completed transactions - by necessity they will have to find a ready, willing and able party eager to pay an even greater price for the same security.
If this "greater fool" is nowhere to be found - current mortgage investors will quickly realize they have made a major financial blunder -- and will immediately begin scrambling to unload their mortgage assets as quickly as possible to minimize the financial pain. The more selling pressure this activity creates -- the more desperate sellers will become and the harder it will be to find buyers - a scenario, should it develop, marked by surging note rates and plummeting rate sheet prices = higher rates!
Mortgage investors will be keenly attuned to tomorrow morning's August nonfarm payroll data. If the headline payroll number matches or exceeds the consensus estimate for a loss of 100,000 jobs -- and/or the national jobless rate creeps up 9.6% or higher -- mortgage investors will breathe a sigh of relief as mortgage interest rates trade steady to fractionally lower.
Should the August nonfarm payroll report indicate 75,000 or fewer jobs were lost during the month -- and/or should the national jobless rate post a reading of 9.5% or lower -- the race for the market exists will be on - with mortgage interest rates moving higher and prices slumping sharply lower. This latter scenario carries a lower probability of actually occurring - though not so low that it can be discounted completely. Be ready.
AND historically a Friday going into a three day holiday weekend spells higher rates!!
Wednesday, September 1, 2010
Wednesday, SEPTEMBER 1, 2010
The Institute of Supply Management's Manufacturing Index showed surprising strength last month. This measure of activity at the nation's factories rose from a reading of 55.5 in July to 56.3 for August. The modest gain bucked investors' expectations for a gain in the very low 50's.
The data suggests conditions in the manufacturing sector held up much better than anticipated last month. The manufacturing sector has now expanded for 13 straight months -- though the pace of growth has slowed noticeably during the last quarter. The ISM August data is at odds with recent regional reports from the Federal Reserve showing a far more notable slowdown in the manufacturing sector.
It appears investors decided the mixed message with respect to activity levels at the nation's factories warrants the use of a "better-safe-than-sorry" pipeline risk management strategy this morning - an event that has created the move to lower rate sheet prices in today's early going.
Recent record low 30-year mortgage interest rates have served to nudge the Mortgage Bankers of America's weekly composite mortgage application index up a very modest 2.7%. The survey for the week showed all mortgage applications edged 2.7% higher on a week-over-week basis. The refinance index climbed 2.8% while the purchase index showed a gain of a more modest 1.8% for the week. Refinance applications accounted for about 83% of all applications and more than 80% of the prospective loan volume.
The data suggests conditions in the manufacturing sector held up much better than anticipated last month. The manufacturing sector has now expanded for 13 straight months -- though the pace of growth has slowed noticeably during the last quarter. The ISM August data is at odds with recent regional reports from the Federal Reserve showing a far more notable slowdown in the manufacturing sector.
It appears investors decided the mixed message with respect to activity levels at the nation's factories warrants the use of a "better-safe-than-sorry" pipeline risk management strategy this morning - an event that has created the move to lower rate sheet prices in today's early going.
Recent record low 30-year mortgage interest rates have served to nudge the Mortgage Bankers of America's weekly composite mortgage application index up a very modest 2.7%. The survey for the week showed all mortgage applications edged 2.7% higher on a week-over-week basis. The refinance index climbed 2.8% while the purchase index showed a gain of a more modest 1.8% for the week. Refinance applications accounted for about 83% of all applications and more than 80% of the prospective loan volume.
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