Retail Sales in July rebounded a little while inflation pressures at the consumer level remained stuck at their lowest levels since the 60's.
Overall retail sales were 0.4% higher last month. Excluding autos, sales were up a more modest 0.2%. The July improvement followed two months of decline. Mortgage investors gave the data little more than a passing glance since it is almost a given the pace of sales will remain anemic until job and wage growth show sustained improvement.
Higher energy costs during the month of July nudged the headline consumer price index higher by 0.4%, the first rise in this metric in four months. But outside the more volatile food and energy components the so-called "core" cost of living crept only 0.2% higher, leaving the year-over year gain at just 0.9% for a fourth consecutive month - a positive for the near-term prospects of steady to fractionally lower mortgage interest rates.
The coming week will offer a respite from all the drama of the past five trading days. Tuesday will be an active day with the release of the July Housing Starts and Building Permits figures, the July Producer Price data together with the July Industrial Production and Capacity Utilization numbers. None of these reports are expected to offer anything sensational enough to influence the direction of mortgage interest rates one way or the other. Thursday's initial jobless claims number might exert some noticeable upward pressure on mortgage rates - but only in the off-chance it shows a headcount decline of 15,000 or more.
In my opinion the trend trajectory of mortgage interest rates will be most influenced by trading action in the stock markets next week. In my judgment should the Dow closes above 10600 -- it will likely move on up to 10800 or so before running out of steam. If this scenario develops look for mortgage interest rates to move fractionally higher. I will consider this assessment to be completely invalid should the Dow close below 10200 - but for the time being I believe the probabilities are tilting in favor of a short-lived but relatively powerful counter-trend rally in the stock market. Heads up.
Friday, August 13, 2010
Wednesday, August 11, 2010
WEDNESDAY, August 11 2010
Investors around the world are swarming into the relative safe haven of Treasury obligations as the global economy continues to show signs of cooling. The yield on 2-year notes touched a new historical low earlier today at 2.687%. This new round of "flight-to-quality" buying was ignited by yesterday's surprise move by the Fed to begin a modified stimulus program by reinvesting the proceeds their portfolio of maturing mortgage-backed securities into longer-dated Treasury obligations.
The projected purchasing power the Fed is expected to deploy next year is projected be about $200 billion - certainly a big number to you and me - but a fairly modest sum in terms of its influence in the Treasury market. The latest guesstimates I've seen suggest the new round of buying by the Fed will help hold Treasury yields (and by extension mortgage interest rates) about 50 basis-points lower than they might have otherwise been. Nice - but certainly not as earthshaking as some of the media talking heads are trying to make it out to be.
I'll be particularly interested to see how the Fed's new program influences bank lending. Banks, especially big money center banks, have curtailed much of their normal lending operations in favor of engaging in very profitable "carry trades" - a transaction in which the bank borrows short-term money from the Federal Reserve near 0% and invests the loan proceeds in longer-dated Treasury obligations at 2+% -- making a very handsome, no-risk return in the process. That is a heck-of-a-deal for the bank - but it significantly retards growth for the broader economy.
If the Fed successfully squeezes a large part of the profit out of the "carry trade" by keeping long-term interest rates low -- banks will ultimately go looking for the higher returns to be found providing financing for the growth of the overall economy. We'll see is this scenario works out - but it is possible the Fed may have indeed engineered a process to get the engine of economic growth restarted.
As they do every Wednesday, the Mortgage Bankers of America have released their mortgage application survey for the week ended August 6th. The overall index, which includes both purchase and refinance loan requests, climbed 0.6% higher for the week. Refinance demand was 0.6% while purchase demand edged up by 0.3%. The contract rate for 30-year fixed-rate mortgages (a value which excludes lender fees and points) fell to 4.57%, the lowest ever recorded by the MBA in 20-years of record keeping.
Uncle Sam will be in the credit markets today conducting an auction of a $24 billion bundle of 10-year notes. The sale is expected to draw decent demand from both domestic and global investors alike. If so, this event will not likely exert significant influence on the direction of mortgage interest rates one way or the other.
The projected purchasing power the Fed is expected to deploy next year is projected be about $200 billion - certainly a big number to you and me - but a fairly modest sum in terms of its influence in the Treasury market. The latest guesstimates I've seen suggest the new round of buying by the Fed will help hold Treasury yields (and by extension mortgage interest rates) about 50 basis-points lower than they might have otherwise been. Nice - but certainly not as earthshaking as some of the media talking heads are trying to make it out to be.
I'll be particularly interested to see how the Fed's new program influences bank lending. Banks, especially big money center banks, have curtailed much of their normal lending operations in favor of engaging in very profitable "carry trades" - a transaction in which the bank borrows short-term money from the Federal Reserve near 0% and invests the loan proceeds in longer-dated Treasury obligations at 2+% -- making a very handsome, no-risk return in the process. That is a heck-of-a-deal for the bank - but it significantly retards growth for the broader economy.
If the Fed successfully squeezes a large part of the profit out of the "carry trade" by keeping long-term interest rates low -- banks will ultimately go looking for the higher returns to be found providing financing for the growth of the overall economy. We'll see is this scenario works out - but it is possible the Fed may have indeed engineered a process to get the engine of economic growth restarted.
As they do every Wednesday, the Mortgage Bankers of America have released their mortgage application survey for the week ended August 6th. The overall index, which includes both purchase and refinance loan requests, climbed 0.6% higher for the week. Refinance demand was 0.6% while purchase demand edged up by 0.3%. The contract rate for 30-year fixed-rate mortgages (a value which excludes lender fees and points) fell to 4.57%, the lowest ever recorded by the MBA in 20-years of record keeping.
Uncle Sam will be in the credit markets today conducting an auction of a $24 billion bundle of 10-year notes. The sale is expected to draw decent demand from both domestic and global investors alike. If so, this event will not likely exert significant influence on the direction of mortgage interest rates one way or the other.
TUESDAY, August 10, 2010 UPDATE
Update 1:30 p.m. ET.
At the conclusion of their one-day meeting the members of the Federal Open Market Committee announced their decision to leave short-term interest rates unchanged for an "extended period." The Committee also made public their intent to "hold steady" their balance sheet by reinvesting the proceeds from their maturing mortgage-backed security portfolio into longer-dated Treasury obligations. This action is deemed to be a preemptive move by the Fed to head-off a sharper down-turn in the economy by maintaining a stronger-than-normal demand for government debt.
Bond daddies like this move by the Fed because it will tend to hold overall interest rates - and especially longer-term interest rates - at lower levels than normal market conditions might have otherwise supported. Stock jocks like the Fed's strategy because it means the Fed remains strongly engaged in the effort to "do what it takes" to stimulate economic growth through monetary processes. For the time being all is well in both the credit and stock markets.
At the conclusion of their one-day meeting the members of the Federal Open Market Committee announced their decision to leave short-term interest rates unchanged for an "extended period." The Committee also made public their intent to "hold steady" their balance sheet by reinvesting the proceeds from their maturing mortgage-backed security portfolio into longer-dated Treasury obligations. This action is deemed to be a preemptive move by the Fed to head-off a sharper down-turn in the economy by maintaining a stronger-than-normal demand for government debt.
Bond daddies like this move by the Fed because it will tend to hold overall interest rates - and especially longer-term interest rates - at lower levels than normal market conditions might have otherwise supported. Stock jocks like the Fed's strategy because it means the Fed remains strongly engaged in the effort to "do what it takes" to stimulate economic growth through monetary processes. For the time being all is well in both the credit and stock markets.
TUESDAY, August 10, 2010
Blog is Back - BETTER than ever with the up to the minute mortgage market updates that you want and need to follow!!
Will they or won't they?
The core question mortgage investors are batting back and forth among themselves this morning has to do with what, if any changes Fed Chairman Bernanke and his band of merry central bankers will choose to make to current monetary policy. The Fed will make their decision known through their post-meeting statement expected to be issued at 2:15 p.m. ET. I will provide you with an update as quickly as I can immediately thereafter.
In my opinion policymakers will renew their vow to keep their benchmark short-term interest rates near zero for an "extended period" -- and will indicate their concern the budding economic recovery is at risk -- but they will stop short of announcing any form of new stimulus program. I look for the Fed to highlight the fact they have a large arsenal of tools immediately available should additional monetary stimulus be required. If my assessment is correct, the stock market will be vulnerable to a rather sharp sell-off while mortgage interest rates will likely continue to hover within shouting distance of current levels.
In the off-chance the Fed says the risks of the economy tumbling deeper into a recessionary spiral has increased to the point that immediate stimulus steps must be deployed - stocks will likely bounce back and forth in a wide trading range while mortgage interest rates initially knee-jerk rally to new lows on an intraday basis -- before a surge in profit-taking pressures create a long, slow leak back the other way.
No matter how you choose to "slice-and-dice-it" there is no escaping the reality that the core energy source needed to reignite the economic recovery process is now far less dependent on significantly lower interest rates (most hovering at or near their historical lows) - than it is in a marked improvement in fiscal policy - which is the direct domain of Congress and the Obama administration.
Prior to the conclusion of the Fed meeting Uncle Sam will be in the credit markets conducting an auction of a $34 billion bundle of 3-year notes. The sale is expected to draw decent demand from both domestic and global investors alike. If so, this event will not likely exert significant influence on the direction of mortgage interest rates one way or the other. I'll provide an auction update on my web site as soon as possible once the final gavel falls at 1:00 p.m. ET.
Will they or won't they?
The core question mortgage investors are batting back and forth among themselves this morning has to do with what, if any changes Fed Chairman Bernanke and his band of merry central bankers will choose to make to current monetary policy. The Fed will make their decision known through their post-meeting statement expected to be issued at 2:15 p.m. ET. I will provide you with an update as quickly as I can immediately thereafter.
In my opinion policymakers will renew their vow to keep their benchmark short-term interest rates near zero for an "extended period" -- and will indicate their concern the budding economic recovery is at risk -- but they will stop short of announcing any form of new stimulus program. I look for the Fed to highlight the fact they have a large arsenal of tools immediately available should additional monetary stimulus be required. If my assessment is correct, the stock market will be vulnerable to a rather sharp sell-off while mortgage interest rates will likely continue to hover within shouting distance of current levels.
In the off-chance the Fed says the risks of the economy tumbling deeper into a recessionary spiral has increased to the point that immediate stimulus steps must be deployed - stocks will likely bounce back and forth in a wide trading range while mortgage interest rates initially knee-jerk rally to new lows on an intraday basis -- before a surge in profit-taking pressures create a long, slow leak back the other way.
No matter how you choose to "slice-and-dice-it" there is no escaping the reality that the core energy source needed to reignite the economic recovery process is now far less dependent on significantly lower interest rates (most hovering at or near their historical lows) - than it is in a marked improvement in fiscal policy - which is the direct domain of Congress and the Obama administration.
Prior to the conclusion of the Fed meeting Uncle Sam will be in the credit markets conducting an auction of a $34 billion bundle of 3-year notes. The sale is expected to draw decent demand from both domestic and global investors alike. If so, this event will not likely exert significant influence on the direction of mortgage interest rates one way or the other. I'll provide an auction update on my web site as soon as possible once the final gavel falls at 1:00 p.m. ET.
Wednesday, May 12, 2010
Wednesday, May 12, 2010
Uncle Sam is back in the credit markets today looking to borrow $24 billion in the form of 10-year notes. Global investors are still pacing the floor as they try to determine whether the $1 trillion rescue package the European Central Bank hammered out over the weekend will be enough to quash the developing debt crisis for Greece and others. This uncertainty together with questions concerning the sustainability of the current stock market rally will likely be enough to induce decent "flight-to-quality" bidding at the government's 10-year note auction this afternoon. If this assessment proves accurate, the impact of this event on the current level of mortgage interest rate will likely be almost imperceptible.
FYI -- as they do every Wednesday, the Mortgage Bankers of America released their mortgage application index for the week ended May 7th earlier this morning. The MBA said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, rose 3.9% last week. The demand for purchase loans dropped 9.5% while refinance loan requests jumped 14.8% higher. The contract rate for 30-year fixed rate mortgages finished the week at 4.96% -- a value 6 basis-points lower than the prior week.
FYI -- as they do every Wednesday, the Mortgage Bankers of America released their mortgage application index for the week ended May 7th earlier this morning. The MBA said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, rose 3.9% last week. The demand for purchase loans dropped 9.5% while refinance loan requests jumped 14.8% higher. The contract rate for 30-year fixed rate mortgages finished the week at 4.96% -- a value 6 basis-points lower than the prior week.
Thursday, May 6, 2010
Thursday, May 6, 2010
FOR THOSE THAT QUALIFY: 30 Year fixed Rate 4.75%
20 Year Fixed Rate 4.5%
15 Year Fixed Rate 4.25
MARKET UPDATE : Update 3:35 p.m. - Here in a nutshell what happened to create the stunning whipsaw price action in the stock, bond and mortgage backed securities market this afternoon.
The biggest intraday point drop ever in the Dow Jones Industrial Average may have been caused by an erroneous trade entered by a person at a big Wall Street bank, according to multiple market sources. The so called "fat finger" trade apparently was made by an exchanged traded fund that holds shares of some of the biggest and most largely held shares in the NASDAQ.
In essence instead of entering a trade to sell 100 shares, someone entered a trade to sell 1,000,000 shares. The size of the trade immediately triggered selling by computerized trading platforms and individual investors in both the NASDAQ and the DOW - ultimately resulting in an intraday plunge of more than 950 points for the Dow Jones Industrial Average before calmer, cooler heads prevailed and the DOW closed down a relatively mild 347.8 points.
If it weren't for the enormous amount of panic this event caused in the financial markets - I think this would be a great scenario for one of those Southwest Airlines - "Want to get away?" - commercials.
The dramatic swoon in the stock markets this afternoon produced such a gigantic surge in buying demand that it outstripped by multiples the available supply of safe-haven instruments like Treasury obligations and mortgage-backed securities. When demand reaches panic levels - price soars - and it certainly did in the credit markets this afternoon. As the panic subsides - so do prices.
20 Year Fixed Rate 4.5%
15 Year Fixed Rate 4.25
MARKET UPDATE : Update 3:35 p.m. - Here in a nutshell what happened to create the stunning whipsaw price action in the stock, bond and mortgage backed securities market this afternoon.
The biggest intraday point drop ever in the Dow Jones Industrial Average may have been caused by an erroneous trade entered by a person at a big Wall Street bank, according to multiple market sources. The so called "fat finger" trade apparently was made by an exchanged traded fund that holds shares of some of the biggest and most largely held shares in the NASDAQ.
In essence instead of entering a trade to sell 100 shares, someone entered a trade to sell 1,000,000 shares. The size of the trade immediately triggered selling by computerized trading platforms and individual investors in both the NASDAQ and the DOW - ultimately resulting in an intraday plunge of more than 950 points for the Dow Jones Industrial Average before calmer, cooler heads prevailed and the DOW closed down a relatively mild 347.8 points.
If it weren't for the enormous amount of panic this event caused in the financial markets - I think this would be a great scenario for one of those Southwest Airlines - "Want to get away?" - commercials.
The dramatic swoon in the stock markets this afternoon produced such a gigantic surge in buying demand that it outstripped by multiples the available supply of safe-haven instruments like Treasury obligations and mortgage-backed securities. When demand reaches panic levels - price soars - and it certainly did in the credit markets this afternoon. As the panic subsides - so do prices.
Tuesday, May 4, 2010
Tuesday, May 4, 2010
Doubts about the final approval of a viable Greek fiscal rescue package and a profit taking sell-off in the stock markets have combined to support the prospects for steady to fractionally lower mortgage interest rates today.
Mortgage investors largely shrugged off as "old news" an early morning report from the government indicating March factory orders rose a stronger-than-expected 1.3%. The surge in factory orders in March had been largely telegraphed by the more current April Institute of Supply Management's manufacturing activity report yesterday.
From this point forward mortgage investors will spend the balance of the week positioning themselves for the April nonfarm payroll data series due out on Friday morning at 8:30 a.m. ET. Most analysts expect the economy produced 2000,000 new jobs in March -- while the national jobless rate remained at 9.7%. If the consensus estimate values prove accurate, look for mortgage interest rates to remain little changed. On the other hand, should headline payrolls improve by 210,000 or more and/or should the national jobless rate slip to 9.6% or lower you can virtually "take-it-to-the-bank" mortgage investors will respond by pushing mortgage interest rates notably higher.
Mortgage investors largely shrugged off as "old news" an early morning report from the government indicating March factory orders rose a stronger-than-expected 1.3%. The surge in factory orders in March had been largely telegraphed by the more current April Institute of Supply Management's manufacturing activity report yesterday.
From this point forward mortgage investors will spend the balance of the week positioning themselves for the April nonfarm payroll data series due out on Friday morning at 8:30 a.m. ET. Most analysts expect the economy produced 2000,000 new jobs in March -- while the national jobless rate remained at 9.7%. If the consensus estimate values prove accurate, look for mortgage interest rates to remain little changed. On the other hand, should headline payrolls improve by 210,000 or more and/or should the national jobless rate slip to 9.6% or lower you can virtually "take-it-to-the-bank" mortgage investors will respond by pushing mortgage interest rates notably higher.
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