Trading activity is thin this morning as investors await the results of this afternoon's $16 billion sale of 30-year bonds by the Treasury Department. This auction represents the last leg of a record-sized $81 billion three-part borrowing spree by Uncle Sam. The Treasury sold $40 billion of 3-year notes on Monday and $25 billion of 10-year notes on Tuesday. The 10-year sale drew decent demand while the 3-year note auction generated the strongest buyer appetite in more than 20 years.
One group of analysts is arguing the falling dollar will lure bargain shopping foreign investors in droves to today's 30-year bond sale. The opposing camp is equally convinced that now that the Fed is no longer actively adding to their fixed-income portfolio, these longer-dated securities will likely require higher yields to attract the necessary capital.
Everybody will be watching intently to see if demand steps up on its own. If so, interest rates in general -- and mortgage interest rates in particular --will likely remain little changed. On the other hand, if private demand is weak -- mortgage investors will almost certainly register their displeasure by pushing mortgage interest rates noticeably higher.
In other news of the day - the government reported the number of workers filing new claims for jobless benefits dropped by 12,000 last week. The four-week moving average of new claims, considered a better gauge of underlying trends, fell by 4,500 for the period. During the latest week for which data is available (week ended October 24th) enrollment in extended benefits programs decreased by 28,240 while the Emergency Unemployment Compensation program enrollment rose by 22,400.
Behind all this statistical mumbo-jumbo a story of very gradual improvement in the labor sector is beginning to emerge. Even so, it will likely be an extended period of time before the worst collapse in the labor sector since the Great Depression is declared officially over. Recent economic improvement has to be sustained for many months for hiring to resume, as businesses first increase existing worker hours and bring on temporary workers before increasing payroll head count. The majority of analysts firmly believe it will be well into the second-half of 2010 before the Labor Department's headline nonfarm payroll report shows any meaningful gains. Over the same time frame labor market data will tend to mute the development of upward pressure on mortgage interest rates emanating from other influences.
FYI: Earlier today the Mortgage Bankers of America said their seasonally adjusted index of total mortgage applications rose 3.2% during the week ended November 6th. Requests for refinance loans were up 11.3% while purchase applications slid 11.7% lower.
Thursday, November 12, 2009
Tuesday, November 10, 2009
Tuesday, November 10, 2009
Trading activity is thin this morning as investors await the results of this afternoon's $25 billion sale of 10-year notes by the Treasury Department.
Market participants are divided in their opinion on whether today's record setting 10-year note auction will "coattail" off of yesterday's stellar 3-year note auction and go off without a hitch. Bids for Monday's 3-year note offering from Uncle Sam were the strongest in more than twenty-years.
One group of analysts is arguing the falling dollar will lure bargain shopping foreign investors in droves to today's 10-year note sale. The opposing camp is equally convinced that now that the Fed is no longer actively adding to their fixed-income portfolio, these longer-dated securities will likely require higher yields to attract the necessary capital.
Everybody will be watching intently to see if demand steps up on its own. If so, interest rates in general -- and mortgage interest rates in particular --will likely remain little changed. On the other hand, if private demand is weak -- mortgage investors will almost certainly register their displeasure by pushing mortgage interest rates noticeably higher.
Market participants are divided in their opinion on whether today's record setting 10-year note auction will "coattail" off of yesterday's stellar 3-year note auction and go off without a hitch. Bids for Monday's 3-year note offering from Uncle Sam were the strongest in more than twenty-years.
One group of analysts is arguing the falling dollar will lure bargain shopping foreign investors in droves to today's 10-year note sale. The opposing camp is equally convinced that now that the Fed is no longer actively adding to their fixed-income portfolio, these longer-dated securities will likely require higher yields to attract the necessary capital.
Everybody will be watching intently to see if demand steps up on its own. If so, interest rates in general -- and mortgage interest rates in particular --will likely remain little changed. On the other hand, if private demand is weak -- mortgage investors will almost certainly register their displeasure by pushing mortgage interest rates noticeably higher.
Monday, November 9, 2009
Monday, November 9, 2009
Trading activity in the mortgage market is extremely subdued this morning as investors await the results of Uncle Sam’s record setting $40 billion auction of 3-year notes. The auction will conclude at 1:00 p.m. ET.
Demand will likely be solid for this offering as investors can earn an extra 0.50 percent point in yield as compared to the 2-year notes -- in exchange for taking only slightly more interest rate risk. The Fed’s continuing pledge to keep their benchmark short-term rates near zero and a very weak October payroll report will probably make this offer hard to resist for domestic and foreign investors alike.
Uncle Sam will return to the credit markets tomorrow afternoon looking to borrow $25 billion in 10-year notes and he’ll auction off a $16 billion stack of 30-year bonds on Thursday afternoon.
Even though demand for government debt has remained strong this year it is unclear whether strong results from today’s 3-year note auction will carry over to the two other auctions scheduled for this week. The Federal Reserve’s $300 billion Treasury purchase program ended last month, removing one element of demand from the bidding process. This week’s longer-dated auctions will be the first without direct participation from the Fed.
Everybody will be watching intently to see if demand steps up on its own. If so, interest rates in general -- and mortgage interest rates in particular --will likely remain little changed. On the other hand, if private demand is weak -- mortgage investors will almost certainly register their displeasure by pushing mortgage interest rates noticeably higher.
Demand will likely be solid for this offering as investors can earn an extra 0.50 percent point in yield as compared to the 2-year notes -- in exchange for taking only slightly more interest rate risk. The Fed’s continuing pledge to keep their benchmark short-term rates near zero and a very weak October payroll report will probably make this offer hard to resist for domestic and foreign investors alike.
Uncle Sam will return to the credit markets tomorrow afternoon looking to borrow $25 billion in 10-year notes and he’ll auction off a $16 billion stack of 30-year bonds on Thursday afternoon.
Even though demand for government debt has remained strong this year it is unclear whether strong results from today’s 3-year note auction will carry over to the two other auctions scheduled for this week. The Federal Reserve’s $300 billion Treasury purchase program ended last month, removing one element of demand from the bidding process. This week’s longer-dated auctions will be the first without direct participation from the Fed.
Everybody will be watching intently to see if demand steps up on its own. If so, interest rates in general -- and mortgage interest rates in particular --will likely remain little changed. On the other hand, if private demand is weak -- mortgage investors will almost certainly register their displeasure by pushing mortgage interest rates noticeably higher.
Friday, November 6, 2009
Friday, November 6, 2009
The mortgage market was buoyed in this morning's early going by a surprisingly weak labor sector snapshot.
The nation's jobless rate jumped to a reading of 10.2% in October -- matching its highest level since April 1983, while employers axed a steeper-than-expected 190,000 jobs last month. The average workweek length of just 33 hours did not move from the historic low set in September.
The bright spots in this morning's report were few - the government data wonks revised job losses for August and September to show 91,000 fewer jobs lost than first reported. Also worth noting was the fact that temporary employment has now risen for three consecutive months. Temporary employment always tends to accelerate in the early stages of a recovery in the labor sector as employers do everything possible to avoid adding permanent head-count until they are confident a sustained acceleration in economic activity is at hand. This reticence to add permanent jobs will not only forestall meaningful job growth, it will pose a drag on consumer spending - the engine that drives more than 70% of domestic economic activity.
Fixed income investors (those that buy and hold government debt obligations and mortgage-backed securities) are concerned that the government may feel compelled to develop another round of economic stimulus to replace the lack of spending at the consumer level. On its face it sounds like a very worth while and noble idea - but in practice it would lead to a massive expansion of government debt - a condition that would almost certainly put notable upward pressure on private borrowing costs of all sorts.
No one knows for sure how the current economic quagmire will be resolved - but if it involves issuing more government debt you can take-it-to-the-bank the prospects for lower mortgage interest rates will come out on the proverbial "short-end-of-the-stick."
Speaking of government debt, Uncle Sam will be in the credit markets next week looking to borrow a record setting $81 billion in the form of three- and 10-year notes together with a smattering of 30-year bonds on Monday, Tuesday, and Thursday respectively. The three-year notes will likely draw strong demand but the other two offerings may prove to be a problem. If so, it will probably be difficult, if not impossible for mortgage interest rates to move conspicuously lower over the coming five business days.
Next week's economic calendar offers nothing of consequence but does include a mortgage market holiday on Wednesday for the Veteran's Day Holiday.
The nation's jobless rate jumped to a reading of 10.2% in October -- matching its highest level since April 1983, while employers axed a steeper-than-expected 190,000 jobs last month. The average workweek length of just 33 hours did not move from the historic low set in September.
The bright spots in this morning's report were few - the government data wonks revised job losses for August and September to show 91,000 fewer jobs lost than first reported. Also worth noting was the fact that temporary employment has now risen for three consecutive months. Temporary employment always tends to accelerate in the early stages of a recovery in the labor sector as employers do everything possible to avoid adding permanent head-count until they are confident a sustained acceleration in economic activity is at hand. This reticence to add permanent jobs will not only forestall meaningful job growth, it will pose a drag on consumer spending - the engine that drives more than 70% of domestic economic activity.
Fixed income investors (those that buy and hold government debt obligations and mortgage-backed securities) are concerned that the government may feel compelled to develop another round of economic stimulus to replace the lack of spending at the consumer level. On its face it sounds like a very worth while and noble idea - but in practice it would lead to a massive expansion of government debt - a condition that would almost certainly put notable upward pressure on private borrowing costs of all sorts.
No one knows for sure how the current economic quagmire will be resolved - but if it involves issuing more government debt you can take-it-to-the-bank the prospects for lower mortgage interest rates will come out on the proverbial "short-end-of-the-stick."
Speaking of government debt, Uncle Sam will be in the credit markets next week looking to borrow a record setting $81 billion in the form of three- and 10-year notes together with a smattering of 30-year bonds on Monday, Tuesday, and Thursday respectively. The three-year notes will likely draw strong demand but the other two offerings may prove to be a problem. If so, it will probably be difficult, if not impossible for mortgage interest rates to move conspicuously lower over the coming five business days.
Next week's economic calendar offers nothing of consequence but does include a mortgage market holiday on Wednesday for the Veteran's Day Holiday.
Thursday, November 5, 2009
Thursday, November 5, 2009
Mortgage investors will likely spend the balance of the day putting the finishing touches on their risk management strategies before moving to the safety of the sidelines in front of tomorrow morning's October nonfarm payroll report.
News from the Labor Department earlier today indicating third-quarter productivity surged 9.5% on an annualized basis spawned a rally in the stock market while data contained in the same report showing unit labor costs plunged 5.2% ignited some buying interest in the mortgage market.
Mortgage investors view the very powerful productivity gain and super-low labor costs as conditions reinforcing the Fed's ability to forgo any increase in their benchmark short-term interest rates for an "extended period of time" - and that is a condition that tends to be supportive of steady to perhaps fractionally lower mortgage interest rates.
In a separate report the Labor Department said the number of people receiving first-time jobless benefits fell by 20,000 last week to the lowest level since March. That is the good news portion of the current story from the labor market. The bad news is that during the week of October 17th enrollment in extended benefits programs increased by 24,600 while the Emergency Unemployment Compensation program enrollment rose by 90,000+.
In recovery, businesses generally first expand existing worker hours and hire temporary workers before more permanently expanding payroll size. Neither of these trends has shown signs of picking up yet, implying the near-term prospects for the job market remain fairly bleak.
The "so what" factor here is that against such a backdrop -- the power of a "surprise" improvement in the headline October nonfarm payroll figure to create a "Maalox Moment" in the mortgage market featuring rising rates and falling investor prices -- looses much of its potency.
News from the Labor Department earlier today indicating third-quarter productivity surged 9.5% on an annualized basis spawned a rally in the stock market while data contained in the same report showing unit labor costs plunged 5.2% ignited some buying interest in the mortgage market.
Mortgage investors view the very powerful productivity gain and super-low labor costs as conditions reinforcing the Fed's ability to forgo any increase in their benchmark short-term interest rates for an "extended period of time" - and that is a condition that tends to be supportive of steady to perhaps fractionally lower mortgage interest rates.
In a separate report the Labor Department said the number of people receiving first-time jobless benefits fell by 20,000 last week to the lowest level since March. That is the good news portion of the current story from the labor market. The bad news is that during the week of October 17th enrollment in extended benefits programs increased by 24,600 while the Emergency Unemployment Compensation program enrollment rose by 90,000+.
In recovery, businesses generally first expand existing worker hours and hire temporary workers before more permanently expanding payroll size. Neither of these trends has shown signs of picking up yet, implying the near-term prospects for the job market remain fairly bleak.
The "so what" factor here is that against such a backdrop -- the power of a "surprise" improvement in the headline October nonfarm payroll figure to create a "Maalox Moment" in the mortgage market featuring rising rates and falling investor prices -- looses much of its potency.
Wednesday, November 4, 2009
Wednesday, November 4, 2009
Members of the Federal Open Market Committee have begun their final day of monetary policy deliberations. A post-meeting statement is expected to be released at 2:15 p.m. ET.
Most analysts believe the Fed will end their meeting with a reaffirmation of the stance they have maintained since March of this year -policies to support the economy will stay in place for some time, even as signs of recovery mount. In particular the nation's central bankers are not expected to soften their commitment to hold benchmark interest rates exceptionally low for "an extended period of time."
It wouldn't do the Fed much good at this point to alter their message to the marketplace -- since inflation remains benign and the sustainability of the recovery is still in doubt, even as signs of domestic economic improvement begin to peek over the horizon. Look for this event to exert little direct influence on the trend trajectory of mortgage interest rates today.
The Institute of Supply Management, a non-profit association composed of purchasing and supply managers, reported their service sector index posted a reading of 50.6% in October - somewhat disappointing after September's 50.9%. Still, there was little in this report that was surprising or charged mortgage investors perspective for the growth prospects of the largest segment of our economy.
In a separate report the Mortgage Bankers of America said their seasonally adjusted aggregate mortgage application index gained 8.2% last week - a mark that is 60.1% higher than where it stood one year ago. Requests for refinance loans were up 14.5% while purchase money loan requests were down 1.8%.
FYI: Congress is working on a plan to extend tax credit support to homebuyers. The new language in the Senate would allow homeowners who have lived in their home for five of the past eight years and who earn $125,000 or less for individuals or $225,000 for couples to receive a $6,500 tax credit. First-time homebuyers would still be eligible for an $8,000 tax-credit. The tax credit would apply for homes under contract by the end of April, although buyers would have until the end of June to close on the purchase. The Senate is expected to vote on this measure by the end of the week. The House, which would have to approve the measure before sending it to President Obama for his signature, is expected to take up the measure next week. More on this story as it become available.
Most analysts believe the Fed will end their meeting with a reaffirmation of the stance they have maintained since March of this year -policies to support the economy will stay in place for some time, even as signs of recovery mount. In particular the nation's central bankers are not expected to soften their commitment to hold benchmark interest rates exceptionally low for "an extended period of time."
It wouldn't do the Fed much good at this point to alter their message to the marketplace -- since inflation remains benign and the sustainability of the recovery is still in doubt, even as signs of domestic economic improvement begin to peek over the horizon. Look for this event to exert little direct influence on the trend trajectory of mortgage interest rates today.
The Institute of Supply Management, a non-profit association composed of purchasing and supply managers, reported their service sector index posted a reading of 50.6% in October - somewhat disappointing after September's 50.9%. Still, there was little in this report that was surprising or charged mortgage investors perspective for the growth prospects of the largest segment of our economy.
In a separate report the Mortgage Bankers of America said their seasonally adjusted aggregate mortgage application index gained 8.2% last week - a mark that is 60.1% higher than where it stood one year ago. Requests for refinance loans were up 14.5% while purchase money loan requests were down 1.8%.
FYI: Congress is working on a plan to extend tax credit support to homebuyers. The new language in the Senate would allow homeowners who have lived in their home for five of the past eight years and who earn $125,000 or less for individuals or $225,000 for couples to receive a $6,500 tax credit. First-time homebuyers would still be eligible for an $8,000 tax-credit. The tax credit would apply for homes under contract by the end of April, although buyers would have until the end of June to close on the purchase. The Senate is expected to vote on this measure by the end of the week. The House, which would have to approve the measure before sending it to President Obama for his signature, is expected to take up the measure next week. More on this story as it become available.
Tuesday, November 3, 2009
Tuesday, November 3, 2009
GET OUT AND VOTE - YOU CANNOT COMPLAIN OR VOICE AN OPINION UNLESS YOU VOTE!!
Market participants will likely spend the next day holding their collective breath as they await the release of the Federal Open Market Committee's post-meeting statement scheduled for 2:15 p.m. ET tomorrow.
The members of the Federal Open Market Committee convened the first of a two-day monetary policy strategy session earlier this morning. Mortgage investors will be keenly interested to see what, if anything has changed in the Fed's thinking about the economy, government economic stimulus tactics and the appropriate level of short-term interest rates. In each of their post-meeting statements since March, the Fed has said it plans to keep interest rates "exceptionally low" for an "extended period."
There is a small chance the Fed may choose to do a little wordsmithing to the verbiage of their post-meeting statement this time around -- by dropping the phrase "exceptionally low" and/or "extended period" -- to clearly set the stage for a change in monetary policy in coming months. If this event were to occur -- holding out hope for notably lower mortgage interest rates would almost certainly be akin to betting on the worm to beat the feathers off of the robin.
Sooner or later the Fed is going to have to remove enough monetary policy support from the economy to see if it can stand on its own. In my opinion, as well as that of the vast majority of other analysts, the Fed will avoid any substantive change to their current strategies until the trend trajectory of employment turns higher for a least three consecutive months.
The likelihood that Friday's October nonfarm payroll report proves to be stronger than expected ramped up a couple of notches yesterday when detail in the October Institute of Supply Management report showed the manufacturing sector employment indexed jumped a sharp 6.9 points higher to 53.1.
The "so what" factor here is significant. It was the first time this economic metric has been above the expansionary threshold since July 2008, and it was the highest reading since 2006 -- and all of that sharply increases the risk of a "knee-jerk" reaction to the employment data that sends mortgage interest rates higher. Heads up.
Market participants will likely spend the next day holding their collective breath as they await the release of the Federal Open Market Committee's post-meeting statement scheduled for 2:15 p.m. ET tomorrow.
The members of the Federal Open Market Committee convened the first of a two-day monetary policy strategy session earlier this morning. Mortgage investors will be keenly interested to see what, if anything has changed in the Fed's thinking about the economy, government economic stimulus tactics and the appropriate level of short-term interest rates. In each of their post-meeting statements since March, the Fed has said it plans to keep interest rates "exceptionally low" for an "extended period."
There is a small chance the Fed may choose to do a little wordsmithing to the verbiage of their post-meeting statement this time around -- by dropping the phrase "exceptionally low" and/or "extended period" -- to clearly set the stage for a change in monetary policy in coming months. If this event were to occur -- holding out hope for notably lower mortgage interest rates would almost certainly be akin to betting on the worm to beat the feathers off of the robin.
Sooner or later the Fed is going to have to remove enough monetary policy support from the economy to see if it can stand on its own. In my opinion, as well as that of the vast majority of other analysts, the Fed will avoid any substantive change to their current strategies until the trend trajectory of employment turns higher for a least three consecutive months.
The likelihood that Friday's October nonfarm payroll report proves to be stronger than expected ramped up a couple of notches yesterday when detail in the October Institute of Supply Management report showed the manufacturing sector employment indexed jumped a sharp 6.9 points higher to 53.1.
The "so what" factor here is significant. It was the first time this economic metric has been above the expansionary threshold since July 2008, and it was the highest reading since 2006 -- and all of that sharply increases the risk of a "knee-jerk" reaction to the employment data that sends mortgage interest rates higher. Heads up.
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