Trading action in the mortgage market is light and choppy as investors tend to move to the sidelines on the last trading day of the quarter. That is probably a wise strategy - since there is really nothing driving the market today. The light offering of economic data released earlier (Chicago area Purchasing Managers Index and the March Consumer Confidence figures) fell roughly in range of expectations rendering them completely toothless with respect to their influence on the direction of mortgage interest rates.
The Fed announced they will not make any purchases in the Treasury market today but they expect to re-enter as a buyer tomorrow and Thursday. Some market participants were disappointed with The Fed's rather feeble buying appetite on Monday. The central bank only bought $2.5 billion in longer-dated Treasury obligations yesterday, compared with $7.5 billion on both Thursday and Friday of last week. In my judgment the Fed is clearly demonstrating their acute awareness that "all-day suckers" never really last that long - so it is important to stretch out the relative good times for as long as possible.
Tuesday, March 31, 2009
Monday, March 30, 2009
Monday, March 30, 2009
Trading activity in the mortgage market is light and sporadic this morning.
The Federal Reserve was an active buyer of Treasury securities again this morning as the central bank continues its efforts to reduce consumer interest rates and stimulate economic growth. The central bank has announced plans to enter the credit market every day this week through April 2nd with the intention of buying a range of Treasury securities with varying maturity dates.
All of this Fed activity will likely serve to hold mortgage interest rates near current levels - at least temporarily. The money the Fed is spending is part of the $300 billion that it has allocated for the direct-purchase of Treasury obligations. While $300 billion sounds like a lot of money - it only amounts to roughly 15% of the $2+ trillion the government intends to borrow this fiscal year (ending in September).
There is no denying the Fed's direct-purchase program is helping sustain mortgage interest rates at levels that would not otherwise be available. That's the good news. The bad news is that it is not a question IF the Fed's financial punch-bowl will run dry - it is simply a matter of WHEN. Without significant new infusions of capital pumped into the system by the Fed or a major event driven "flight-to-quality" buying spree -- there is reason to believe we will do well to get through the second week of April without sustaining a noticeable uptick in mortgage interest rates. If assessments proves accurate, expect the central bank will be a less than active buyer of mortgage-backed securities through the last week of May - choosing instead to "keep-their-powder-dry" to support the more important late-spring early summer buying season in the housing market.
The few economic reports scheduled to be released during the early part of the week will be completely overshadowed by Friday's March Nonfarm payroll figures. Nobody expects the numbers to show any sign of job creation - but should the data indicate the pace of job loss is beginning to taper off --such news will likely tend to put some upward pressure on mortgage interest rates.
The Federal Reserve was an active buyer of Treasury securities again this morning as the central bank continues its efforts to reduce consumer interest rates and stimulate economic growth. The central bank has announced plans to enter the credit market every day this week through April 2nd with the intention of buying a range of Treasury securities with varying maturity dates.
All of this Fed activity will likely serve to hold mortgage interest rates near current levels - at least temporarily. The money the Fed is spending is part of the $300 billion that it has allocated for the direct-purchase of Treasury obligations. While $300 billion sounds like a lot of money - it only amounts to roughly 15% of the $2+ trillion the government intends to borrow this fiscal year (ending in September).
There is no denying the Fed's direct-purchase program is helping sustain mortgage interest rates at levels that would not otherwise be available. That's the good news. The bad news is that it is not a question IF the Fed's financial punch-bowl will run dry - it is simply a matter of WHEN. Without significant new infusions of capital pumped into the system by the Fed or a major event driven "flight-to-quality" buying spree -- there is reason to believe we will do well to get through the second week of April without sustaining a noticeable uptick in mortgage interest rates. If assessments proves accurate, expect the central bank will be a less than active buyer of mortgage-backed securities through the last week of May - choosing instead to "keep-their-powder-dry" to support the more important late-spring early summer buying season in the housing market.
The few economic reports scheduled to be released during the early part of the week will be completely overshadowed by Friday's March Nonfarm payroll figures. Nobody expects the numbers to show any sign of job creation - but should the data indicate the pace of job loss is beginning to taper off --such news will likely tend to put some upward pressure on mortgage interest rates.
Friday, March 27, 2009
Friday, March 27, 2009
Trading activity in the mortgage market is light and sporadic this morning.
The Federal Reserve was an active buyer of $7.5 billion of 2- and 3-year securities earlier today. Central banker’ spent a matching sum on Wednesday when they kicked off their program to acquire up to $300 billion in longer-dated Treasury obligations. The move, known as quantitative easing, is designed to serve as a temporary anchor to prevent interest rates (including mortgage interest rates) – from rising too quickly given the strain created by the current $2+ trillion government borrowing need. There is obviously a huge difference between the amount the Fed has available to spend in their effort to retard the rise of interest rates in general -- and the amount off supply the Treasury intends to dump into the credit market. In this endeavor the Fed is essentially taking a knife to a gunfight. Sure, they may draw a little attention initially – but they will undoubtedly be quickly overwhelmed – and when the inevitable happens – interest rates (including those on mortgages) will begin to move progressively higher.
Today’s macro-economic news had no influence on the current trend trajectory of mortgage interest rates.
The Commerce Department reported this morning that consumer spending rose for a second straight month even as incomes reversed the prior month’s gain. As most analysts expected, spending improved by 0.2% last month while incomes fell by 0.2%. The core rate of inflation (a value that excludes the more volatile food and energy components) at the consumer level proved to be a little “hotter” than expected – posting a gain of 0.2% instead of the modest 0.1% rise most economists had been forecasting.
Looking head to next week -- the few economic reports scheduled to be released during the early part of the week will be completely overshadowed by Friday’s February Nonfarm payroll figures. Nobody expects the numbers to show any sign of job creation – but if the data indicates the pace of job loss is beginning to taper off --such news will likely tend to put some upward pressure on mortgage interest rates.
As mentioned here before – from a technical perspective there are reasons to believe the recent rally in the stock market is living on borrowed time. If assessments proves accurate, the stock markets will experience a fairly sharp round of profit-taking that will perhaps push the value of the Dow back all the way down into the 7300 to 7100 value range. A swoon in the stock market of this magnitude, should it develop, will tend to be supportive of steady to fractionally lower mortgage interest rates. If such an event is going to occur – I think it will manifest itself no later than today, March 27th or Monday, March 30th.
The Federal Reserve was an active buyer of $7.5 billion of 2- and 3-year securities earlier today. Central banker’ spent a matching sum on Wednesday when they kicked off their program to acquire up to $300 billion in longer-dated Treasury obligations. The move, known as quantitative easing, is designed to serve as a temporary anchor to prevent interest rates (including mortgage interest rates) – from rising too quickly given the strain created by the current $2+ trillion government borrowing need. There is obviously a huge difference between the amount the Fed has available to spend in their effort to retard the rise of interest rates in general -- and the amount off supply the Treasury intends to dump into the credit market. In this endeavor the Fed is essentially taking a knife to a gunfight. Sure, they may draw a little attention initially – but they will undoubtedly be quickly overwhelmed – and when the inevitable happens – interest rates (including those on mortgages) will begin to move progressively higher.
Today’s macro-economic news had no influence on the current trend trajectory of mortgage interest rates.
The Commerce Department reported this morning that consumer spending rose for a second straight month even as incomes reversed the prior month’s gain. As most analysts expected, spending improved by 0.2% last month while incomes fell by 0.2%. The core rate of inflation (a value that excludes the more volatile food and energy components) at the consumer level proved to be a little “hotter” than expected – posting a gain of 0.2% instead of the modest 0.1% rise most economists had been forecasting.
Looking head to next week -- the few economic reports scheduled to be released during the early part of the week will be completely overshadowed by Friday’s February Nonfarm payroll figures. Nobody expects the numbers to show any sign of job creation – but if the data indicates the pace of job loss is beginning to taper off --such news will likely tend to put some upward pressure on mortgage interest rates.
As mentioned here before – from a technical perspective there are reasons to believe the recent rally in the stock market is living on borrowed time. If assessments proves accurate, the stock markets will experience a fairly sharp round of profit-taking that will perhaps push the value of the Dow back all the way down into the 7300 to 7100 value range. A swoon in the stock market of this magnitude, should it develop, will tend to be supportive of steady to fractionally lower mortgage interest rates. If such an event is going to occur – I think it will manifest itself no later than today, March 27th or Monday, March 30th.
Thursday, March 26, 2009
Thursday, March 26, 2009
Mortgage investors are just killing time this morning as they await the results of the last of this week’s three big note sales by the Treasury Department. The Treasury will wrap things up with this afternoon’s $24 billion 7-year note sale.
When the Treasury reintroduced seven-year notes last month after a 16-year hiatus, investors’ appetite was very weak. Concerns that today’s offering may draw tepid bidding as well will likely weigh on the credit market – resulting in a very lethargic start to the day for mortgage interest rates. Even though this is only the second 7-year note auction since 1993 – a fact which clouds up the technical picture a bit – I don’t think it would be all that surprising to see a little relief rally in the mortgage-backed securities market exert itself once the Treasury auction concludes at 1:00 p.m. ET.
Today’s macro-economic news was a mixed bag and had no influence on the current trend trajectory of mortgage interest rates.
The government downgraded its final fourth-quarter reading for Gross Domestic Product to -6.3% from the prior estimate of -6.2%. Even though the final revision was less steep than most analysts had anticipated there was no escaping the fact that the economy experienced its most violent contraction in a quarter since 1982.
The one slight bit of silver-lining in this data series came from the inventory measurement component which has fallen so low that it suggests businesses may soon find it necessary to ramp up manufacturing activities to return inventories to more normal levels. At this juncture in the economic cycle the prospects of an inventory rebuild certainly is nothing to write home about – look for it to morph into one of the primary catalysts that rekindles manufacturing activity -- perhaps before the second quarter is over.
To nobody’s surprise labor market conditions continue to deteriorate. The number of workers claiming jobless benefits climbed to a new record of 5.56 million during the week ended March 20th. The number of workers requesting unemployment benefits for the first-time rose by 8,000. Like the earlier Gross Domestic Product figures – this report also contained the slightest bit of silver-lining. The four-week moving average for new claims, considered by many economists to be a better gauge of underlying trends because it irons out week-to-week volatility, fell by 1,000 during the latest reporting. I know it doesn’t sound like much – but at least it stands as the first drop in this series after nine consecutive weeks of increase.
Today’s weekly jobless data didn’t mean a twit to mortgage investors -- but it may be worth at least a casual mention that this report may have contained the tiniest flicker of hope that the worst of the massive round of job destruction this economic cycle has generated may have passed.
When the Treasury reintroduced seven-year notes last month after a 16-year hiatus, investors’ appetite was very weak. Concerns that today’s offering may draw tepid bidding as well will likely weigh on the credit market – resulting in a very lethargic start to the day for mortgage interest rates. Even though this is only the second 7-year note auction since 1993 – a fact which clouds up the technical picture a bit – I don’t think it would be all that surprising to see a little relief rally in the mortgage-backed securities market exert itself once the Treasury auction concludes at 1:00 p.m. ET.
Today’s macro-economic news was a mixed bag and had no influence on the current trend trajectory of mortgage interest rates.
The government downgraded its final fourth-quarter reading for Gross Domestic Product to -6.3% from the prior estimate of -6.2%. Even though the final revision was less steep than most analysts had anticipated there was no escaping the fact that the economy experienced its most violent contraction in a quarter since 1982.
The one slight bit of silver-lining in this data series came from the inventory measurement component which has fallen so low that it suggests businesses may soon find it necessary to ramp up manufacturing activities to return inventories to more normal levels. At this juncture in the economic cycle the prospects of an inventory rebuild certainly is nothing to write home about – look for it to morph into one of the primary catalysts that rekindles manufacturing activity -- perhaps before the second quarter is over.
To nobody’s surprise labor market conditions continue to deteriorate. The number of workers claiming jobless benefits climbed to a new record of 5.56 million during the week ended March 20th. The number of workers requesting unemployment benefits for the first-time rose by 8,000. Like the earlier Gross Domestic Product figures – this report also contained the slightest bit of silver-lining. The four-week moving average for new claims, considered by many economists to be a better gauge of underlying trends because it irons out week-to-week volatility, fell by 1,000 during the latest reporting. I know it doesn’t sound like much – but at least it stands as the first drop in this series after nine consecutive weeks of increase.
Today’s weekly jobless data didn’t mean a twit to mortgage investors -- but it may be worth at least a casual mention that this report may have contained the tiniest flicker of hope that the worst of the massive round of job destruction this economic cycle has generated may have passed.
Wednesday, March 25, 2009
Wednesday, March 25, 2009
Investors are starting to get a little skittish about absorbing large quantities of government debt as they are asked to take on substantial inflation risk in return for very little reward. While Uncle Sam has had no trouble placing short-term debt with maturities up to 2-years - he has begun to find that longer-dated securities are increasingly harder to sell. The "so what" factor from a mortgage market perspective is significant.
The ratio of bids placed to securities sold (the so called "bid-to-cover" ratio) was very low in February and through the auctions of 3- and 10-year notes earlier this month. Many observers believe these low bid-to-cover ratio's confirm investors were looking for more yield than the government was willing to pay. These analysts believe the Federal Reserve was left with little choice but to announce last week it would start buying longer-dated Treasury securities in an effort to temporarily fill the aggressive buyer void. It is highly likely that without the presence of the Fed in the credit markets the yield on today's $34 billion Treasury debt offering of 5-year notes and tomorrow's $20 billion of 7-year notes would have ratcheted higher - likely dragging mortgage interest rates higher in the process. That's the good news.
The bad news is that the Fed's $300 billion war-chest for the direct purchase of Treasury obligations is "chump-change" compared to the government's overall borrowing need this fiscal year (ending in September) of $2+ trillion dollars. The Fed's $300 billion is a far more symbolic - rather than pragmatic sum. The Fed and more experienced market participants clearly know that all the Fed will be able to do with their direct-purchase funds is to forestall the otherwise inevitable rise in long-term borrowing costs (mortgage money included) across the economy.
The Treasury will conclude their auction of 5-year notes at 1:00 p.m. ET. Everybody will be interested to see whether the buying from the Fed today will be able to offset the size of the incoming supply.
Today's February Durable Goods Orders figure and the New Home Sales number briefly drew a little attention from mortgage investors. New orders for items manufactured to last three-year or more rose for the first-time in seven months in February. The Commerce Department said durable goods orders were up 3.4% last month, its biggest increase since December 2007. The February gain was in sharp contrast to the revised 7.3% plunge in orders in January. One month does not make a trend - but the improvement in durable goods orders offers a slight flicker of hope that the worst of the recession in the manufacturing sector may have passed.
In a separate report the Commerce Department announced that sales of newly built single-family homes unexpectedly rose at the fastest pace in 10-months during February. Sales rose 4.7% last month while the inventory of homes available for sale fell to the lowest level since June 2002. Even so, at the current sales pace there is still a 12.2 months supply of available homes on the market. Most analysts firmly believe that a bottom in the new home market will not be reached until the available homes for sales drops to a 10.5 month supply level.
The ratio of bids placed to securities sold (the so called "bid-to-cover" ratio) was very low in February and through the auctions of 3- and 10-year notes earlier this month. Many observers believe these low bid-to-cover ratio's confirm investors were looking for more yield than the government was willing to pay. These analysts believe the Federal Reserve was left with little choice but to announce last week it would start buying longer-dated Treasury securities in an effort to temporarily fill the aggressive buyer void. It is highly likely that without the presence of the Fed in the credit markets the yield on today's $34 billion Treasury debt offering of 5-year notes and tomorrow's $20 billion of 7-year notes would have ratcheted higher - likely dragging mortgage interest rates higher in the process. That's the good news.
The bad news is that the Fed's $300 billion war-chest for the direct purchase of Treasury obligations is "chump-change" compared to the government's overall borrowing need this fiscal year (ending in September) of $2+ trillion dollars. The Fed's $300 billion is a far more symbolic - rather than pragmatic sum. The Fed and more experienced market participants clearly know that all the Fed will be able to do with their direct-purchase funds is to forestall the otherwise inevitable rise in long-term borrowing costs (mortgage money included) across the economy.
The Treasury will conclude their auction of 5-year notes at 1:00 p.m. ET. Everybody will be interested to see whether the buying from the Fed today will be able to offset the size of the incoming supply.
Today's February Durable Goods Orders figure and the New Home Sales number briefly drew a little attention from mortgage investors. New orders for items manufactured to last three-year or more rose for the first-time in seven months in February. The Commerce Department said durable goods orders were up 3.4% last month, its biggest increase since December 2007. The February gain was in sharp contrast to the revised 7.3% plunge in orders in January. One month does not make a trend - but the improvement in durable goods orders offers a slight flicker of hope that the worst of the recession in the manufacturing sector may have passed.
In a separate report the Commerce Department announced that sales of newly built single-family homes unexpectedly rose at the fastest pace in 10-months during February. Sales rose 4.7% last month while the inventory of homes available for sale fell to the lowest level since June 2002. Even so, at the current sales pace there is still a 12.2 months supply of available homes on the market. Most analysts firmly believe that a bottom in the new home market will not be reached until the available homes for sales drops to a 10.5 month supply level.
Tuesday, March 24, 2009
Tuesday, March 24, 2009
Uncle Sam will be splashing around in the credit markets over the course of the next three-days looking to borrow $98 billion in the form of 2-, 5- and 7-year notes. The knowledge the Federal Reserve is waiting in the wings to buy Treasury debt obligations should assure that investor demand for these offerings will be solid. If my assessment proves accurate, the Treasury Department's three-part auction schedule this week will likely provide just enough distraction for investors that mortgage interest rates will remain flat - at least through the conclusion of the 7-year note auction at 1:00 p.m. Thursday, March 26th.
From a technical perspective there are reasons to believe the recent rally in the stock market is living on borrowed time before a fairly sharp round of profit-taking develops to push the value of the Dow back down into the 7300 to 7100 value range. A swoon in the stock market of this magnitude, should it develop, will tend to be supportive of steady to fractionally lower mortgage interest rates. If such an event is going to occur - I think it will manifest itself no later than Friday, March 27th or Monday, March 30th.
From a technical perspective there are reasons to believe the recent rally in the stock market is living on borrowed time before a fairly sharp round of profit-taking develops to push the value of the Dow back down into the 7300 to 7100 value range. A swoon in the stock market of this magnitude, should it develop, will tend to be supportive of steady to fractionally lower mortgage interest rates. If such an event is going to occur - I think it will manifest itself no later than Friday, March 27th or Monday, March 30th.
Monday, March 23, 2009
Monday, March 23, 2009
Trading in the mortgage market is off to a sluggish start this morning as investors direct their attention to the details of the Treasury's plan to set up public-private investment funds to buy up to $1 trillion in troubled loans and securities at the heart of the financial crisis.
Here's is a synopsis of how the plan will work.
· The Treasury will provide $75- to $100-billion to seed capital for public-private investment funds. These investment funds will combine taxpayer money with private capital. The investment funds are to be formed specifically to buy distressed loans from banks. The seed money the government will inject into these investment vehicles will come from the $700 billion financial rescue fund Congress approved last October.
· These investments funds will be able to use FDIC guaranteed debt to achieve a 6-1 debt-to-equity leverage ratio. That's a sweet deal. If private investors and the Treasury each contribute $1 billion to the investment fund, that entity can raise up to $12 billion in FDIC financing to purchase $14 billion in loans.
· Under this part of the program, banks would approach the FDIC with a pool of loans they want to sell. The FDIC would offer financing and the Treasury would partner with private investors to bid in organized auctions for the loans.
· Since the sale of these "toxic" assets will be made through a competitive auction progress (one investment fund bidding against the other) a market for loans and securities that otherwise could not be traded will be established. The competitive bidding process virtually assures the government will not pay to much as they help banks shed debt instruments that are severely limiting the banks available capital. The leverage offered by government financing to private investors ratchets up potential returns into double-digit ranges with minimal risk.
On its face, this is not a bad deal all the way around. The program will not likely become effective until late May, but the early reaction from investors around the globe indicates most believe the strategy outlined by the Treasury Department this morning might just work to revitalize the banking system. Since the details of the Treasury rescue plan were made public earlier this morning a handsome rally in the stock markets has developed - particularly in financial shares - as the prospects for economic growth ahead has now shown flickers of hope.
In other times mortgage investors might have responded to the hint of a future increase in the demand for capital (as banks take the first steps down the road to recovery) by nudging rates fractionally higher. Thank goodness the Fed is in the neighborhood with a fresh $750 billion in its back-pocket earmarked for the direct-purchase of mortgage-backed securities. Only a fool would try to trade against that kind of financial fire-power - and right now the Fed wants mortgage interest rates to remain near current levels.
The release of the February Existing Home Sales report was completely overshadowed by this morning's news events surrounding the Treasury's bank rescue plan. The National Association of Realtors said that existing home sales rose 5.1% last month - a much stronger performance than was expected. After a knee-jerk reaction related to the solid headline number -- mortgage investors shrugged the whole thing off when the details of the report revealed the sharp improvement in sales last month was largely created by significant price-cutting. Even with the sharp February sales gains the inventory of existing homes for sales rose by 5.2%. There is nothing here to suggest a bottom in the housing market has yet been reached.
Here's is a synopsis of how the plan will work.
· The Treasury will provide $75- to $100-billion to seed capital for public-private investment funds. These investment funds will combine taxpayer money with private capital. The investment funds are to be formed specifically to buy distressed loans from banks. The seed money the government will inject into these investment vehicles will come from the $700 billion financial rescue fund Congress approved last October.
· These investments funds will be able to use FDIC guaranteed debt to achieve a 6-1 debt-to-equity leverage ratio. That's a sweet deal. If private investors and the Treasury each contribute $1 billion to the investment fund, that entity can raise up to $12 billion in FDIC financing to purchase $14 billion in loans.
· Under this part of the program, banks would approach the FDIC with a pool of loans they want to sell. The FDIC would offer financing and the Treasury would partner with private investors to bid in organized auctions for the loans.
· Since the sale of these "toxic" assets will be made through a competitive auction progress (one investment fund bidding against the other) a market for loans and securities that otherwise could not be traded will be established. The competitive bidding process virtually assures the government will not pay to much as they help banks shed debt instruments that are severely limiting the banks available capital. The leverage offered by government financing to private investors ratchets up potential returns into double-digit ranges with minimal risk.
On its face, this is not a bad deal all the way around. The program will not likely become effective until late May, but the early reaction from investors around the globe indicates most believe the strategy outlined by the Treasury Department this morning might just work to revitalize the banking system. Since the details of the Treasury rescue plan were made public earlier this morning a handsome rally in the stock markets has developed - particularly in financial shares - as the prospects for economic growth ahead has now shown flickers of hope.
In other times mortgage investors might have responded to the hint of a future increase in the demand for capital (as banks take the first steps down the road to recovery) by nudging rates fractionally higher. Thank goodness the Fed is in the neighborhood with a fresh $750 billion in its back-pocket earmarked for the direct-purchase of mortgage-backed securities. Only a fool would try to trade against that kind of financial fire-power - and right now the Fed wants mortgage interest rates to remain near current levels.
The release of the February Existing Home Sales report was completely overshadowed by this morning's news events surrounding the Treasury's bank rescue plan. The National Association of Realtors said that existing home sales rose 5.1% last month - a much stronger performance than was expected. After a knee-jerk reaction related to the solid headline number -- mortgage investors shrugged the whole thing off when the details of the report revealed the sharp improvement in sales last month was largely created by significant price-cutting. Even with the sharp February sales gains the inventory of existing homes for sales rose by 5.2%. There is nothing here to suggest a bottom in the housing market has yet been reached.
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