The coming week doesn't offer much in the way of potentially mortgage market moving economic data. Tuesday's September Housing Starts and Building Permits numbers together with the September Producer Price Index figures will likely draw little more than a passing glance from mortgage investors.
Friday's September Existing Home Sales numbers might generate some upward pressure on mortgage interest rates if it shows a gain of more than 5.0% -- while certainly possible -- such an outcome is not currently considered very probable.
It is highly likely that trading action in the stock markets will exert the strongest influence on the trend trajectory of mortgage interest rates this week. After a 60% run-up in the stock market since March -- and with the DOW again trading above the psychologically important mark of 10,000 - stock market investors are making strong bets that corporate earnings will continue to "surprise" to the high side of expectations.
According to Thomson Reuters data, 61 companies in the S&P 500 have reported third-quarter results by last Friday - and 79% of them beat Wall Street expectations. If the remaining 439 companies who have yet report earnings follow the current pattern -- stock markets will almost certainly continue to rally at the expense of fractionally higher mortgage interest rates. On the other hand, if the remaining companies fail to solidly beat current earnings expectations, their stock will likely being to sell-off. The larger the number of under-performing companies (as compared to analysts' expectations) the stronger the likelihood stock markets will roll-over into a heavy sell-off - a condition that will tend to be strongly supportive of steady to fractionally lower mortgage interest rates.
Well before the end of the month we will know decisively whether stock market trading activity is going to spook mortgage investors into pushing mortgage interest rates higher - or whether a slump in share prices will treat mortgage market participants to another round of fractionally lower mortgage interest rates.
Stay Tuned...
Monday, October 19, 2009
Thursday, October 15, 2009
Thursday, October 15, 2009
The trend trajectory of stocks and stronger-than-expected news from the labor sector and a slight uptick in the core consumer price index have combined to put additional upward pressure on mortgage interest rates during the early part of the trading day.
The uncertain start to the day for the stock markets has buffeted the mortgage market. The DOW has been whipsawing back and forth in a 50 point range during the first-half of the day - as the psychologically important 10,000 level is subjected to its first half-hearted sustainability test. Falling stock prices tend to be supportive of steady to fractionally lower mortgage interest rates while rising stock prices generally drag mortgage interest rates fractionally higher.
In a report confirming inflation pressures remain benign the Labor Department said its aggregate Consumer Price Index rose by 0.2% in September after posting a gain of 0.4% a month earlier. Stripping out volatile food and energy prices, the closely watched core measure of consumer inflation inched up to a reading of 0.2% -- a touch higher than most mortgage investors had been expecting. As zealously as these investors are protecting profits -- the ever so slight gain in the core rate of consumer inflation has evidently been deemed sufficient justification to push mortgage interest rates fractionally higher. That seems a bit of an extreme reaction to such a mild number - but then again we are dealing with the "Golden Rule" here - you know the one - "he/she who has the gold makes the rules".
In a separate report the Labor Department announced first-time claims for jobless benefits fell by 10,000 during the week ended October 10th. The decline was generally in range of investor expectations. Today's report marks the fifth consecutive decline for this economic metric in the past six weeks. This data tells a story of dwindling layoffs -- but detail in the report also shows the pace of hiring is nothing more than a trickle. The number of those claiming extended benefits or enrolling in the Emergency Unemployment Compensation programs continues to grow - and that's a situation that is not expected to start flashing signs of meaningful improvement until mid-2010.
All-in-all today's round of macro-economic data was pretty tame - so selling pressure is likely coming from some other area of concern - such as the inevitability of the Fed's withdrawal from the marketplace as the most aggressive buyer of mortgage-backed securities. From the first of the year the Fed has purchased roughly 80% of all the agency eligible mortgage-backed securities available - elbowing out a lot of private sector investors in the process. Now that the price of these securities are within shouting distance of their all-time high the Fed is asking the private sector to dive back into the marketplace. There is little doubt the private sector still maintains a healthy appetite for agency eligible mortgage-backed securities - but probably not at current price levels. If that assessment proves accurate, look for mortgage interest rates to begin a slow but progressive move to levels 50 basis point to 100 basis points higher than current levels within the next 12 months - no matter what the rest of the macro-economic picture might, or might not look like.
The uncertain start to the day for the stock markets has buffeted the mortgage market. The DOW has been whipsawing back and forth in a 50 point range during the first-half of the day - as the psychologically important 10,000 level is subjected to its first half-hearted sustainability test. Falling stock prices tend to be supportive of steady to fractionally lower mortgage interest rates while rising stock prices generally drag mortgage interest rates fractionally higher.
In a report confirming inflation pressures remain benign the Labor Department said its aggregate Consumer Price Index rose by 0.2% in September after posting a gain of 0.4% a month earlier. Stripping out volatile food and energy prices, the closely watched core measure of consumer inflation inched up to a reading of 0.2% -- a touch higher than most mortgage investors had been expecting. As zealously as these investors are protecting profits -- the ever so slight gain in the core rate of consumer inflation has evidently been deemed sufficient justification to push mortgage interest rates fractionally higher. That seems a bit of an extreme reaction to such a mild number - but then again we are dealing with the "Golden Rule" here - you know the one - "he/she who has the gold makes the rules".
In a separate report the Labor Department announced first-time claims for jobless benefits fell by 10,000 during the week ended October 10th. The decline was generally in range of investor expectations. Today's report marks the fifth consecutive decline for this economic metric in the past six weeks. This data tells a story of dwindling layoffs -- but detail in the report also shows the pace of hiring is nothing more than a trickle. The number of those claiming extended benefits or enrolling in the Emergency Unemployment Compensation programs continues to grow - and that's a situation that is not expected to start flashing signs of meaningful improvement until mid-2010.
All-in-all today's round of macro-economic data was pretty tame - so selling pressure is likely coming from some other area of concern - such as the inevitability of the Fed's withdrawal from the marketplace as the most aggressive buyer of mortgage-backed securities. From the first of the year the Fed has purchased roughly 80% of all the agency eligible mortgage-backed securities available - elbowing out a lot of private sector investors in the process. Now that the price of these securities are within shouting distance of their all-time high the Fed is asking the private sector to dive back into the marketplace. There is little doubt the private sector still maintains a healthy appetite for agency eligible mortgage-backed securities - but probably not at current price levels. If that assessment proves accurate, look for mortgage interest rates to begin a slow but progressive move to levels 50 basis point to 100 basis points higher than current levels within the next 12 months - no matter what the rest of the macro-economic picture might, or might not look like.
Wednesday, October 14, 2009
Wednesday, October 14, 2009
The mortgage market is getting slapped around this morning by the combination of strong stock market performance and data showing the pace of September retail sales was healthier than expected. These two developments combined to reduce the appeal of safe-haven investments like government debt obligations and agency eligible mortgage-backed securities.
Retail sales actually increased for a second straight month in September once the volatile auto component is stripped put. This was a strong retail sales report with few segments showing sales declines. It appears many mortgage investors are viewing the broad-based improvements as an indication Americans are becoming more confident the economy is recovering -- even as job losses persist. It is worth noting that most of the gain in retail sales (excluding autos) was lead by warehouse clubs and supercenters -- which is evidence that consumers are trading down in their purchases. Rather than shopping at department stores consumers are shopping at warehouse clubs and rather than going out to eat at restaurants -- sales at grocery stores are increasing. The "so what" factor here is the data clearly shows consumers remain financially constrained. Consumers simply lack the cash to spend aggressively -- which by extension is an indication that overall economic growth will almost surely remain limited until job creation and the attendant wage and salary growth improves significantly.
In a separate report the Mortgage Bankers of America said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, decreased 1.8% during the week of October 9th. Applications to buy a home, seen as a tentative indicator of sales, dropped 5.0% while refinance applications slipped 0.1% lower. Borrowing costs on 30-year fixed-rate agency eligible mortgages, excluding fees, averaged 5.02 percent, up 0.13 percentage points from the pervious week. The 30-year rate remained above the all-time low of 4.61 percent set during the week ended March 27th but well below the year-ago level of 6.47%.
www.masonspointe.com
Thursday, October 8, 2009
Thursday, October 8, 2009
Today's sale of $12 billion of 30-year bonds will conclude this week's $78 billion, four-part borrowing spree by Uncle Sam. Dealers will likely approach today's auction a little more cautiously than they originally intended prior to the release of this morning's surprisingly strong initial jobless claims report from the Labor Department.
The government said their data shows the number of American workers filing first-time jobless claims dropped 33,000 during the week ended October 3rd - completely offsetting the prior week's increase and reaching a nine-month low for this measure of labor sector health. The four-week moving average for new claims, considered a better gauge of underlying trends since it irons out week-to-week volatility, declined for the fifth straight week. According to analysis provided by the "Dismal Scientist", initial claims appear to be falling as quickly in this cycle as they had following the major recession of the mid-1970's and early 1980's - a hopeful indication of better days to come for the unemployed. It is still far too early to declare the crisis in the labor sector is over - but there is an increasing number of signs hinting the worst of the disaster may have passed.
Companies are now in a position where further job cuts will be limited - but it will probably be a number of months yet before the "now hiring" signs go up in significant numbers. Until then -- the story from the labor sector will tend to support steady to perhaps fractionally lower mortgage interest rates.
The government said their data shows the number of American workers filing first-time jobless claims dropped 33,000 during the week ended October 3rd - completely offsetting the prior week's increase and reaching a nine-month low for this measure of labor sector health. The four-week moving average for new claims, considered a better gauge of underlying trends since it irons out week-to-week volatility, declined for the fifth straight week. According to analysis provided by the "Dismal Scientist", initial claims appear to be falling as quickly in this cycle as they had following the major recession of the mid-1970's and early 1980's - a hopeful indication of better days to come for the unemployed. It is still far too early to declare the crisis in the labor sector is over - but there is an increasing number of signs hinting the worst of the disaster may have passed.
Companies are now in a position where further job cuts will be limited - but it will probably be a number of months yet before the "now hiring" signs go up in significant numbers. Until then -- the story from the labor sector will tend to support steady to perhaps fractionally lower mortgage interest rates.
Wednesday, October 7, 2009
Wednesday, October 7, 2009
The Treasury Department is gearing up this morning to conduct its third auction of the week. The government will be taking bids on $20 billion of 10-year notes. The final gavel is slated to fall at 1:00 p.m. ET.
A well bid 10-year note auction followed by solid demand for tomorrow's 30-year bond offering will be viewed by many as a solid indication that fixed-income investors see no looming threat of inflation anywhere on the horizon - which by extension - suggests these investors believe economic growth will once again begin to wane in 2010. The good news here is that mortgage interest rates will almost certainly continue to hover within a whisper of historic lows while the bad news is that the demand for mortgage financing will likely continue to contract as joblessness rises and the consumer develops a "bunker mentality" with respect to spending of any sort.
On the other hand, if the Treasury's 10-year note and 30-year bond offering result in higher yields for both of these instruments, fixed-income investors will be putting their-money-where-their-mouth-is with respect to their belief the sustained economic growth will prevail -- which will in-turn lead to an increase in employment opportunities followed by a notable increase in mortgage demand. Granted, if this scenario develops it will set the stage for a slow but progressive move to higher mortgage interest rates. If such an event were to occur - it may actually prove to be a "good thing" in terms of origination volumes.
As mentioned before in this space before, there are an increasing number of reasons to think we've reached a point in the economic cycle where a modest uptick in mortgage interest rates created by accelerating economic growth will actually lead to the development of a far better market place for mortgage originators than a economic backdrop that supports yet lower mortgage interest rates could ever come close to generating.
It is Wednesday - which means the Mortgage Bankers of America have released their index of mortgage applications for the most recent week -- ended October 2nd. The aggregate index, which includes both purchase and refinance loans, rose 16.4% to its highest level since the week ended May 22nd. Requests for purchase money mortgages were up 13.2% while requests for refinance funding were up 18.2%. The refinance share of applications on a national basis rose to 66.3% from 65.3% the previous week, but remained well below the peak of 85.3% during the week ended January 9th. The MBA went on to report 30-year fixed-rate mortgages, excluding fees, averaged 4.89%, down 0.05 percentage points from the previous week and the lowest since the week ended May 22nd. Last week's 30-year conforming fixed-rate was above the all-time low of 4.61% set back during the week of March 27th - but well below the year-ago mark of 5.99%.
A well bid 10-year note auction followed by solid demand for tomorrow's 30-year bond offering will be viewed by many as a solid indication that fixed-income investors see no looming threat of inflation anywhere on the horizon - which by extension - suggests these investors believe economic growth will once again begin to wane in 2010. The good news here is that mortgage interest rates will almost certainly continue to hover within a whisper of historic lows while the bad news is that the demand for mortgage financing will likely continue to contract as joblessness rises and the consumer develops a "bunker mentality" with respect to spending of any sort.
On the other hand, if the Treasury's 10-year note and 30-year bond offering result in higher yields for both of these instruments, fixed-income investors will be putting their-money-where-their-mouth-is with respect to their belief the sustained economic growth will prevail -- which will in-turn lead to an increase in employment opportunities followed by a notable increase in mortgage demand. Granted, if this scenario develops it will set the stage for a slow but progressive move to higher mortgage interest rates. If such an event were to occur - it may actually prove to be a "good thing" in terms of origination volumes.
As mentioned before in this space before, there are an increasing number of reasons to think we've reached a point in the economic cycle where a modest uptick in mortgage interest rates created by accelerating economic growth will actually lead to the development of a far better market place for mortgage originators than a economic backdrop that supports yet lower mortgage interest rates could ever come close to generating.
It is Wednesday - which means the Mortgage Bankers of America have released their index of mortgage applications for the most recent week -- ended October 2nd. The aggregate index, which includes both purchase and refinance loans, rose 16.4% to its highest level since the week ended May 22nd. Requests for purchase money mortgages were up 13.2% while requests for refinance funding were up 18.2%. The refinance share of applications on a national basis rose to 66.3% from 65.3% the previous week, but remained well below the peak of 85.3% during the week ended January 9th. The MBA went on to report 30-year fixed-rate mortgages, excluding fees, averaged 4.89%, down 0.05 percentage points from the previous week and the lowest since the week ended May 22nd. Last week's 30-year conforming fixed-rate was above the all-time low of 4.61% set back during the week of March 27th - but well below the year-ago mark of 5.99%.
Tuesday, October 6, 2009
Tuesday, October 6, 2009
Investors are making space in their portfolios for today's record supply of three-year notes - resulting in a weak start for the mortgage market.
Today's auction follows yesterday's very successful offering of 10-year Inflation-Protected Securities. Most analysts strongly believe the 3-year notes will draw an equally strong demand from buyers. There is some slight concern that the Chinese week long, national holiday may result in lower foreign investor participation than normal - but in terms of the 3-year notes - the impact should be minimal.
There are concerns about the market's ability to absorb tomorrow's $20 billion of 10-year notes without the full support of the Chinese credit market participants. Since June the overall demand for Treasury debt by both domestic and international investors has remained brisk - as our economy shank deeper into the depths of a massive recession, the dollar fell on international currency markets, inflation was a "no show" and the Fed pledged that their benchmark short-term interest rates would remain near zero. Even so, trees-don't-growth-to-the-sky and investors' appetite for any class of asset eventually wanes.
In the world of single-family mortgages fixed income investors, those that buy assets like longer-dated Treasury debt obligations and mortgage-backed securities, by necessity live in the future - not the present. The radars for these "guys" are focused six months or more into the future and their trades are driven largely by the perception of "what-will-be" - rather than shorter-term (day or days) traders who focus more simply on "what is". It is this very distinctive difference between trading styles that can/will create an environment of rising mortgage interest rates in a period of time when near-term macro-economic reports suggest rates should be trending steady to lower.
A well bid 10-year note auction tomorrow and solid demand for Thursday's 30-year bond offering will be viewed by many as a solid indication that fixed-income investors see no looming threat of inflation anywhere on the horizon - which by extension - suggests these investors believe economic growth will once again begin to wane in 2010. The good news here is that mortgage interest rates will almost certainly continue to hover within a whisper of historic lows while the bad news is that the demand for mortgage financing will likely continue to contract as joblessness rises and the consumer develops a "bunker mentality" with respect to spending of any sort.
On the other hand, if the Treasury's 10-year note and 30-year bond offering result in higher yields for both of these instruments, fixed-income investors will be putting their-money-where-their-mouth-is with respect to their belief the sustained economic growth will prevail -- which will in-turn lead to an increase in employment opportunities followed by a notable increase in mortgage demand. Granted, if this scenario develops it will set the stage for a slow but progressive move to higher mortgage interest rates - which may actually prove to be a "good thing".
As mentioned in this space before, there are an increasing number of reasons to think we've reached a point in the economic cycle where a modest uptick in mortgage interest rates created by accelerating economic growth will actually create a better market place for mortgage originators -- than a economic backdrop that supports yet lower mortgage interest rates could ever come close to generating.
Today's auction follows yesterday's very successful offering of 10-year Inflation-Protected Securities. Most analysts strongly believe the 3-year notes will draw an equally strong demand from buyers. There is some slight concern that the Chinese week long, national holiday may result in lower foreign investor participation than normal - but in terms of the 3-year notes - the impact should be minimal.
There are concerns about the market's ability to absorb tomorrow's $20 billion of 10-year notes without the full support of the Chinese credit market participants. Since June the overall demand for Treasury debt by both domestic and international investors has remained brisk - as our economy shank deeper into the depths of a massive recession, the dollar fell on international currency markets, inflation was a "no show" and the Fed pledged that their benchmark short-term interest rates would remain near zero. Even so, trees-don't-growth-to-the-sky and investors' appetite for any class of asset eventually wanes.
In the world of single-family mortgages fixed income investors, those that buy assets like longer-dated Treasury debt obligations and mortgage-backed securities, by necessity live in the future - not the present. The radars for these "guys" are focused six months or more into the future and their trades are driven largely by the perception of "what-will-be" - rather than shorter-term (day or days) traders who focus more simply on "what is". It is this very distinctive difference between trading styles that can/will create an environment of rising mortgage interest rates in a period of time when near-term macro-economic reports suggest rates should be trending steady to lower.
A well bid 10-year note auction tomorrow and solid demand for Thursday's 30-year bond offering will be viewed by many as a solid indication that fixed-income investors see no looming threat of inflation anywhere on the horizon - which by extension - suggests these investors believe economic growth will once again begin to wane in 2010. The good news here is that mortgage interest rates will almost certainly continue to hover within a whisper of historic lows while the bad news is that the demand for mortgage financing will likely continue to contract as joblessness rises and the consumer develops a "bunker mentality" with respect to spending of any sort.
On the other hand, if the Treasury's 10-year note and 30-year bond offering result in higher yields for both of these instruments, fixed-income investors will be putting their-money-where-their-mouth-is with respect to their belief the sustained economic growth will prevail -- which will in-turn lead to an increase in employment opportunities followed by a notable increase in mortgage demand. Granted, if this scenario develops it will set the stage for a slow but progressive move to higher mortgage interest rates - which may actually prove to be a "good thing".
As mentioned in this space before, there are an increasing number of reasons to think we've reached a point in the economic cycle where a modest uptick in mortgage interest rates created by accelerating economic growth will actually create a better market place for mortgage originators -- than a economic backdrop that supports yet lower mortgage interest rates could ever come close to generating.
Monday, October 5, 2009
Monday, October 5, 2009
Uncle Sam has plans to borrow $78 billion this week. He will start things off with $7 billion of 10-year inflation-indexed securities today followed by $39 billion of 3-year notes tomorrow, $20 billion of 10-year notes on Wednesday and he will wrap things up on Thursday with a $12 billion offering of 30-year bonds. Demand has been solid at previous government debt auctions. Keep your fingers crossed that this week's supply is easily absorbed. If investors get a case of indigestion trying to swallow this mammoth amount of supply -- the upward pressure on mortgage interest rates will increase substantially.
The incoming macro-economic news is sparse this week. Investors took just a moment this morning to grant the September Institute of Supply Management service sector report a passing glance. This measure of activity in the largest sector of the economy rose to 50.9% in September - a nice improvement from 48.4 in August and noticeably above the consensus forecast for a reading of 50.0. The service sector represents about 80% of domestic economic activity, including businesses such as banks, mortgage companies, airlines, hotels and restaurants. The prices paid component of the index fell to 48.8 in September from 63.1 in August - highlighting the fact current inflation pressures are essentially nonexistent. The employment component of the index rose to its highest level since August 2008 - registering a reading of 44.3 from 43.5 in August. Melted down to its bare essence -- the September Institute of Supply Management service sector report is consistent with market participants' current glass-half-full view of the economy. No big whoop.
The "adjustable" feature of today's 10-year inflation-indexed notes the government will be peddling should make them very attractive to domestic and foreign investors alike. If this assessment proves accurate, today's auction will not exert much, if any influence on the current trend trajectory of mortgage interest rates.
The incoming macro-economic news is sparse this week. Investors took just a moment this morning to grant the September Institute of Supply Management service sector report a passing glance. This measure of activity in the largest sector of the economy rose to 50.9% in September - a nice improvement from 48.4 in August and noticeably above the consensus forecast for a reading of 50.0. The service sector represents about 80% of domestic economic activity, including businesses such as banks, mortgage companies, airlines, hotels and restaurants. The prices paid component of the index fell to 48.8 in September from 63.1 in August - highlighting the fact current inflation pressures are essentially nonexistent. The employment component of the index rose to its highest level since August 2008 - registering a reading of 44.3 from 43.5 in August. Melted down to its bare essence -- the September Institute of Supply Management service sector report is consistent with market participants' current glass-half-full view of the economy. No big whoop.
The "adjustable" feature of today's 10-year inflation-indexed notes the government will be peddling should make them very attractive to domestic and foreign investors alike. If this assessment proves accurate, today's auction will not exert much, if any influence on the current trend trajectory of mortgage interest rates.
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