Mortgage interest rates were nudged fractionally lower by weaker-than-expected retail sales figures for April.
Retail sales fell 0.4% in April, baffling the significant number of economist who had been expecting April retail sales to make a much better showing. The 0.4% drop in the headline number followed a revised 1.3% drop in March that was also weaker-than-expected. Stripping out the volatile auto sales component did not help the numbers look any better. Even reduced to this base level, retail sales fell 0.5% last month. The "so what" factor attached to this morning's April retail sales report is that all investors were given a big reminder that the economy is staggering along a rocky, uneven road to recovery.
In a separate report the Mortgage Bankers of America said application demand slipped to its lowest level since mid-March during the week-ended April 9th, driven by a drop in requests to refinance loans. The MBA's overall application index dropped by 8.6% compared to the previous week level. Refinance applications fell 11.2% -- while the component of the index that measures purchase loan requests posted a modest 0.5% improvement.
Last but certainly not lest, selling pressure in the stock market is contributing to solid improvements in the mortgage market in today's early going. An increasing number of analysts are warning the rally in stock prices that began in early March is overdue for a correction to the downside. Should these forecasts prove accurate; a meaningful sell-off in the stock markets will almost certainly support the prospects for steady to perhaps fractionally lower mortgage interest rates.
Wednesday, May 13, 2009
Monday, May 11, 2009
Monday, May 11, 2009
The Fed is definitely making their presence felt in the Treasury market this morning.
The Fed is actively buying Treasury obligations maturing in 15- to 30-years. Today's Fed operation is part of its ongoing $300 billion plan to purchase government debt to help keep borrowing cost artificially low, giving the economy the opportunity to fight its way out of a major recession. That is good news. The even better news is that Mr. Bernanke has plans for an encore performance in the Treasury market tomorrow. For the time begin, expect these Fed buying sprees to limit any significant upside pressure on mortgage interest rates.
Selling pressure in the stock market is contributing to solid improvements in the mortgage market in today's early going. An increasing number of analysts are warning the rally in stock prices that began in early March is overdue for a correction to the downside. Should these forecasts prove accurate; a meaningful sell-off in the stock markets will almost certainly support the prospects for steady to perhaps fractionally lower mortgage interest rates.
The Fed is actively buying Treasury obligations maturing in 15- to 30-years. Today's Fed operation is part of its ongoing $300 billion plan to purchase government debt to help keep borrowing cost artificially low, giving the economy the opportunity to fight its way out of a major recession. That is good news. The even better news is that Mr. Bernanke has plans for an encore performance in the Treasury market tomorrow. For the time begin, expect these Fed buying sprees to limit any significant upside pressure on mortgage interest rates.
Selling pressure in the stock market is contributing to solid improvements in the mortgage market in today's early going. An increasing number of analysts are warning the rally in stock prices that began in early March is overdue for a correction to the downside. Should these forecasts prove accurate; a meaningful sell-off in the stock markets will almost certainly support the prospects for steady to perhaps fractionally lower mortgage interest rates.
Thursday, May 7, 2009
Thursday, May 7, 2009
Mortgage investors will no doubt approach the next two days as carefully. There is nothing like a major Treasury auction, the release of a much anticipated government mandated bank stress test, and an upcoming major macro-economic report to make mortgage investors antsy.
Uncle Sam is in the credit markets once again this morning looking to borrow $14 billion in the form of 30-year bonds. This will be the last leg of the Treasury Department's three-part quarterly refunding. A number of analysts are concerned that the current yield of 4.17% is not high enough to attract significant buying interest from auction participants. If these concerns are proven to be well founded -- the bid price for this offering will fall - pushing the yield on the 30-year bond higher. That's a scenario that will almost certainly result in higher mortgage interest rates. While the yield on the 30-year bond may indeed be pushed higher -- as investors chose to remain guarded in front of this afternoon's release of the government's bank stress test results and tomorrow's big April nonfarm payroll data - the 30-year bond yield won't climb by much and the overall impact on the current level of mortgage interest rates related to these events will be minimal.
The results of the government's "stress test" for 19 of the top banks in the country will officially be made public at 5:00 p.m. ET today. Treasury Secretary Geithner has reassured investors that none of the 19 banks under examination are at risk of insolvency. Some banks in the group may need injections of additional capital to meet the new government standards. Should the total amount of capital required to bring these banks "up-to-snuff" fall below $300 billion - most analysts believe investors will breathe a big sigh of relief -- and the rally in the stock markets will continue unabated. I'm not so sure - but should this scenario "pan-out" like most predict it will - this event will tend to put some modest additional upward pressure on mortgage interest rates.
The unexpected drop in the number of people filing first-time claims for unemployment benefits during the past week was a bit unsettling for mortgage investors. The Labor Department reported weekly jobless claims for the period ended May 2nd fell by 34,000 - equaling a mark last experienced in January. The four-week moving average of jobless claims, a better gauge of underlying labor trends because it irons out week-to-week volatility, fell for the fourth week in a row. The survey period for this week's jobless claims data falls outside of the survey period for tomorrow's much more important April nonfarm payroll report. Nonetheless, a number of mortgage investors are marking their headline forecast for nonfarm payrolls down to a loss of 600,000 to 590,000 jobs from their earlier estimates for April job losses of 620,000 or more. Only a handful of analysts have elected to mark down their expectations for a national jobless rate of 8.9% to be reported tomorrow.
Uncle Sam is in the credit markets once again this morning looking to borrow $14 billion in the form of 30-year bonds. This will be the last leg of the Treasury Department's three-part quarterly refunding. A number of analysts are concerned that the current yield of 4.17% is not high enough to attract significant buying interest from auction participants. If these concerns are proven to be well founded -- the bid price for this offering will fall - pushing the yield on the 30-year bond higher. That's a scenario that will almost certainly result in higher mortgage interest rates. While the yield on the 30-year bond may indeed be pushed higher -- as investors chose to remain guarded in front of this afternoon's release of the government's bank stress test results and tomorrow's big April nonfarm payroll data - the 30-year bond yield won't climb by much and the overall impact on the current level of mortgage interest rates related to these events will be minimal.
The results of the government's "stress test" for 19 of the top banks in the country will officially be made public at 5:00 p.m. ET today. Treasury Secretary Geithner has reassured investors that none of the 19 banks under examination are at risk of insolvency. Some banks in the group may need injections of additional capital to meet the new government standards. Should the total amount of capital required to bring these banks "up-to-snuff" fall below $300 billion - most analysts believe investors will breathe a big sigh of relief -- and the rally in the stock markets will continue unabated. I'm not so sure - but should this scenario "pan-out" like most predict it will - this event will tend to put some modest additional upward pressure on mortgage interest rates.
The unexpected drop in the number of people filing first-time claims for unemployment benefits during the past week was a bit unsettling for mortgage investors. The Labor Department reported weekly jobless claims for the period ended May 2nd fell by 34,000 - equaling a mark last experienced in January. The four-week moving average of jobless claims, a better gauge of underlying labor trends because it irons out week-to-week volatility, fell for the fourth week in a row. The survey period for this week's jobless claims data falls outside of the survey period for tomorrow's much more important April nonfarm payroll report. Nonetheless, a number of mortgage investors are marking their headline forecast for nonfarm payrolls down to a loss of 600,000 to 590,000 jobs from their earlier estimates for April job losses of 620,000 or more. Only a handful of analysts have elected to mark down their expectations for a national jobless rate of 8.9% to be reported tomorrow.
Wednesday, May 6, 2009
Tuesday, May 6, 2009
Uncle Sam is splashing around in the credit market this morning looking to borrow $22 billion in the form of 10-year notes. He'll wrap-up things up at 1:00 p.m. ET.
As expected, yesterday's three-year note auction went off without a hitch and generated solid investor demand. Keep you fingers crossed that today's outsized 10-year note auction goes as well. The Treasury's 10-year notes are currently carrying a yield better than 3.0% -- which should make them enticing to domestic and foreign investors alike. A well bid 10-year note auction will tend to support steady to perhaps fractionally lower interest rates while weak auction results will likely put some upward pressure on mortgage rates. Today's 10-year note offering will likely produce unremarkable bid results. If so, this event will exert little, if any meaningful influence on the direction of mortgage interest rates today.
There was nothing in the way of important economic news from the government on today's calendar - so the private ADP payroll survey and the Challenger, Gray and Christmas survey of layoff announcements garnered a little more attention from mortgage investors than normal. The ADP National Employment Report showed a 491,000 drop in private payrolls in March, a far less severe decline than the 650,000 job loss in the private sector most analysts had been expecting to see. The Challenger report showed planned job cuts totaled 132,590 in April, significantly less that the 150,411 March number. Both of these private reports are known to vary significantly from the labor sector numbers the government reports. Even so, the marked improvement in the private April data has some mortgage investors nervous that the nonfarm payroll report from the Labor Department on Friday may not be nearly as bleak as most analysts currently expect.
Most market participants, economists and analysts in general are expecting the government's April Nonfarm Payroll report will show the nation lost 620,000 jobs (from both the private and government sectors) last month - a condition that has caused the unemployment rate to surge to 8.9% from the March level of 8.4%. Actual numbers that closely approximate this consensus estimate are already priced into the mortgage market and will therefore create little if any impact on the current level of mortgage interest rates.
With respect to the mortgage market, the risk on Friday is that the headline payroll number posts a job loss of 600,000 or less and/or the national jobless rate post a reading of 8.7% or less. Actual numbers that fall meaningfully below current expectations will probably unsettle a rather large number of mortgage investors. As you well know, spooked investors tend to sell first -- and ask questions later. If this scenario were to develop, even aggressive buying by the Fed will not likely be enough to keep mortgage interest rates from moving uncomfortably higher from current levels.
As expected, yesterday's three-year note auction went off without a hitch and generated solid investor demand. Keep you fingers crossed that today's outsized 10-year note auction goes as well. The Treasury's 10-year notes are currently carrying a yield better than 3.0% -- which should make them enticing to domestic and foreign investors alike. A well bid 10-year note auction will tend to support steady to perhaps fractionally lower interest rates while weak auction results will likely put some upward pressure on mortgage rates. Today's 10-year note offering will likely produce unremarkable bid results. If so, this event will exert little, if any meaningful influence on the direction of mortgage interest rates today.
There was nothing in the way of important economic news from the government on today's calendar - so the private ADP payroll survey and the Challenger, Gray and Christmas survey of layoff announcements garnered a little more attention from mortgage investors than normal. The ADP National Employment Report showed a 491,000 drop in private payrolls in March, a far less severe decline than the 650,000 job loss in the private sector most analysts had been expecting to see. The Challenger report showed planned job cuts totaled 132,590 in April, significantly less that the 150,411 March number. Both of these private reports are known to vary significantly from the labor sector numbers the government reports. Even so, the marked improvement in the private April data has some mortgage investors nervous that the nonfarm payroll report from the Labor Department on Friday may not be nearly as bleak as most analysts currently expect.
Most market participants, economists and analysts in general are expecting the government's April Nonfarm Payroll report will show the nation lost 620,000 jobs (from both the private and government sectors) last month - a condition that has caused the unemployment rate to surge to 8.9% from the March level of 8.4%. Actual numbers that closely approximate this consensus estimate are already priced into the mortgage market and will therefore create little if any impact on the current level of mortgage interest rates.
With respect to the mortgage market, the risk on Friday is that the headline payroll number posts a job loss of 600,000 or less and/or the national jobless rate post a reading of 8.7% or less. Actual numbers that fall meaningfully below current expectations will probably unsettle a rather large number of mortgage investors. As you well know, spooked investors tend to sell first -- and ask questions later. If this scenario were to develop, even aggressive buying by the Fed will not likely be enough to keep mortgage interest rates from moving uncomfortably higher from current levels.
Tuesday, May 5, 2009
CINCO de MAYO, 2009
Economic activity will turn a positive corner later in the year as long as the financial sector continues to mend. The improvement will come even as unemployment remains high. This was part of the fairly positive assessment of economic conditions Fed Chairman Bernanke provided to the Joint Economic Committee of Congress earlier this morning. Bernanke said central bankers see reason to believe the housing market may be approaching the bottom of its three-year slide, driven in part by tentative signs of a rebound in consumer spending, the primary driving force behind economic growth. He went on to say that even after the recovery begins, "the rate of growth of real economic activity is likely to remain below its longer-run potential for a while."
The story behind all this mumbo-jumbo from a mortgage market perspective is that improved economic activity levels tend to lead to an increased demand for capital from consumers and businesses -- which in-turn ultimately leads to higher interest rates. I realize there are those that argue higher mortgage interest rates are unlikely if for no other reason than the Fed has been an aggressive buyer all year.
Granted, at one time this year the Fed had roughly $1.25 trillion dollars in their back pocket to support steady to lower mortgage interest rates through the direct purchase of mortgage-backed securities. As of last Thursday, the Fed has spent a $404 billion of their available capital. The good news is that experts agree these purchases by the Fed have been instrumental in driving agency- eligible mortgage interest rates to historical lows. The bad news is that the Fed is running a "burn-rate" of roughly $100 billion per month in direct purchases of mortgage-backed securities.
The "so what" factor here is definitely worth noting. Once the Fed passes the half-way point (roughly $612 billion in direct mortgage-backed securities purchases) their ability to hold mortgage interest rates near historical lows will begin to fade at an accelerating rate. The probability the Fed will choose to ramp up the amount of capital currently authorized is small. As we move into the second half of the year it is reasonable to expect conforming mortgage interest rates to begin a slow, but progressive march to 6.0% levels and above.
The story behind all this mumbo-jumbo from a mortgage market perspective is that improved economic activity levels tend to lead to an increased demand for capital from consumers and businesses -- which in-turn ultimately leads to higher interest rates. I realize there are those that argue higher mortgage interest rates are unlikely if for no other reason than the Fed has been an aggressive buyer all year.
Granted, at one time this year the Fed had roughly $1.25 trillion dollars in their back pocket to support steady to lower mortgage interest rates through the direct purchase of mortgage-backed securities. As of last Thursday, the Fed has spent a $404 billion of their available capital. The good news is that experts agree these purchases by the Fed have been instrumental in driving agency- eligible mortgage interest rates to historical lows. The bad news is that the Fed is running a "burn-rate" of roughly $100 billion per month in direct purchases of mortgage-backed securities.
The "so what" factor here is definitely worth noting. Once the Fed passes the half-way point (roughly $612 billion in direct mortgage-backed securities purchases) their ability to hold mortgage interest rates near historical lows will begin to fade at an accelerating rate. The probability the Fed will choose to ramp up the amount of capital currently authorized is small. As we move into the second half of the year it is reasonable to expect conforming mortgage interest rates to begin a slow, but progressive march to 6.0% levels and above.
Monday, May 4, 2009
Monday, May 4, 2009
The mortgage market will be under siege this week with three Treasury auctions, the release of the government's bank stress test and the latest numbers from the employment sector on Friday.
The Treasury will auction $35 billion of three-year notes on Tuesday, $22 billion of 10-year notes on Wednesday and $14 billion of 30-year bonds on Thursday. The yield on all three securities is within shouting distance of pre-Thanksgiving levels - which should make them very attractive to domestic and foreign investors alike. If so, Uncle Sam's three-part Treasury auction this week should leave mortgage interest rates relatively unscathed.
The government's release of the stress test for banks late on Thursday will be, in my opinion, the "wild card" of the week. Passing grades for the majority of the 19 banks involved will likely support a continued rally in the stock market at the expense of fractionally higher mortgage interest rates. On the other hand, if the stress test reveals the majority of banks are more fragile than expected look for stocks to swoon as investors scramble to move capital into the relative safe haven of Treasury obligations and mortgage-backed securities.
Friday's 8:30 a.m. ET release of the April nonfarm payroll report may prove to be a non-event with respect to its impact on the mortgage market. Mortgage investors have already priced-in expectations for a 620,000 job loss and a 0.4% gain in the national jobless rate to 8.9% from the March level of 8.5%. Employment numbers that happen to be worse than forecast -- will not likely cause much of a stir in the mortgage market. The same cannot be said for numbers that are not as bleak as forecast. In the unlikely case the headline nonfarm payroll report shows the economy shed 600,000 or fewer jobs and/or the national jobless rate posts a reading of 8.8% or less look for mortgage investors to register their surprise by pushing mortgage interest rates higher.
The Treasury will auction $35 billion of three-year notes on Tuesday, $22 billion of 10-year notes on Wednesday and $14 billion of 30-year bonds on Thursday. The yield on all three securities is within shouting distance of pre-Thanksgiving levels - which should make them very attractive to domestic and foreign investors alike. If so, Uncle Sam's three-part Treasury auction this week should leave mortgage interest rates relatively unscathed.
The government's release of the stress test for banks late on Thursday will be, in my opinion, the "wild card" of the week. Passing grades for the majority of the 19 banks involved will likely support a continued rally in the stock market at the expense of fractionally higher mortgage interest rates. On the other hand, if the stress test reveals the majority of banks are more fragile than expected look for stocks to swoon as investors scramble to move capital into the relative safe haven of Treasury obligations and mortgage-backed securities.
Friday's 8:30 a.m. ET release of the April nonfarm payroll report may prove to be a non-event with respect to its impact on the mortgage market. Mortgage investors have already priced-in expectations for a 620,000 job loss and a 0.4% gain in the national jobless rate to 8.9% from the March level of 8.5%. Employment numbers that happen to be worse than forecast -- will not likely cause much of a stir in the mortgage market. The same cannot be said for numbers that are not as bleak as forecast. In the unlikely case the headline nonfarm payroll report shows the economy shed 600,000 or fewer jobs and/or the national jobless rate posts a reading of 8.8% or less look for mortgage investors to register their surprise by pushing mortgage interest rates higher.
Friday, May 1, 2009
Friday, May 1, 2009
Supply is a big issue today as investors are busy trying to make room in their portfolios for next week's record setting $71 billion borrowing spree by Uncle Sam. The government will be in credit markets conducting a three-part auction beginning on Tuesday with a $35 billion 3-year note auction, followed by Wednesday's $22 billion 10-year note auction and concluding with Thursday's $14 billion 30-year bond offering. The yield on all three securities has risen rather sharply over the past week or so - which may result in investor appetite proving to be stronger than many now expect. If so, next week's three-part Treasury auction may ultimately support steady to perhaps fractionally lower mortgage interest rates.
Next week's economic calendar will be relatively light through the first four days of the week - but will end with a bang when Friday's April Nonfarm Payroll figures are released at 8:30 a.m. ET. Most mortgage investors have already priced in expectations of a headline payroll figure indicating the economy lost 630,000 jobs last month, while the national jobless rate dropped to 8.9% from the March level of 8.5%.
With so many expecting such dreary news from the labor sector the risk (in terms of mortgage interest rates) is that the nonfarm payroll data proves to be stronger-than-expected. I'm not saying such an outcome is probable - I'm just saying it should be considered possible. The "so what" factor here goes like this -- Mortgage investors live in the future - not the present. The story from the labor sector doesn't have to improve much to induce investors to start incrementally ratcheting up mortgage interest rates in anticipation of stronger numbers to come.
Next week's economic calendar will be relatively light through the first four days of the week - but will end with a bang when Friday's April Nonfarm Payroll figures are released at 8:30 a.m. ET. Most mortgage investors have already priced in expectations of a headline payroll figure indicating the economy lost 630,000 jobs last month, while the national jobless rate dropped to 8.9% from the March level of 8.5%.
With so many expecting such dreary news from the labor sector the risk (in terms of mortgage interest rates) is that the nonfarm payroll data proves to be stronger-than-expected. I'm not saying such an outcome is probable - I'm just saying it should be considered possible. The "so what" factor here goes like this -- Mortgage investors live in the future - not the present. The story from the labor sector doesn't have to improve much to induce investors to start incrementally ratcheting up mortgage interest rates in anticipation of stronger numbers to come.
Subscribe to:
Posts (Atom)
