Mortgage investors gave this morning's March Personal Income and Spending data and the first-quarter Employment Cost Index figures nothing more than a passing glance. Both sets of numbers fell roughly inline with the majority of economists' expectations and therefore had already been priced into the market.
Mortgage investors' attention is keenly focused on the upcoming battle developing between the White House and congressional leaders as the clock tick downs on the mid-May deadline to raise the $14.3 trillion cap on government borrowing. Default, even if temporary, could have long-term adverse effects for Treasury debt sales - and by extension - the trend trajectory of mortgage interest rates.
Even if those in power reach an agreement to raise the debt ceiling -- but in the process choose to engage in another round of political brinkmanship that pushes the financial debate down to the wire - you can bet the upward pressure on mortgage interest rates will rise as both domestic and global market participants are forced to prepare for a potential debt default by the United States government. Most observers believe an accord will be reached -- but the timing of such an event is still in question.
The coming week will be a busy one with respect to potentially market moving economic reports. Things kick-off on Monday when the Institute of Supply Management releases their April manufacturing activity index at 10:00 a.m. ET. The Institute's April Service Sector Index will take center-stage on Wednesday morning at 10:00 a.m. ET and the grand finale will occur on Friday with the release of the April Nonfarm Payroll stats at 8:30 a.m. ET. All three major reports are currently expected to prove supportive of steady to perhaps fractionally lower mortgage interest rates.
Friday, April 29, 2011
Thursday, February 17, 2011
Wednesday, February 16, 2011
The Labor Department reported this morning that inflation pressures at the wholesale level shot up again in January as energy and food costs continued to rise. The seasonally adjusted 0.8% gain in January follows a 0.9% gain in December and marks the seventh consecutive monthly increase in raw material prices for manufacturers. Even more of a concern than the surge in the headline producer price index, at least from a mortgage investor's perspective, is the fact that the core producer price index, a value which excludes the volatile food and energy costs, spiked 0.5% higher last, marking the largest month-over-month gain for this component since October 2008
Up to this point in the recovery from the Great Recession producers have not had the pricing-power necessary to push through much, if any, of the increases in their raw material costs to the consumer. That story could change quickly. Investors will scrutinize the details of tomorrow morning's January consumer price index (8:30 a.m. ET) for any sign that inflation pressures on Main Street are ramping up.
Most analysts believe the core rate of the consumer price index (a value excluding the more volatile food and energy costs) for January will not post a gain of more than 0.1%. If so, look for mortgage interest rates to move sideways to perhaps slightly lower - but be ready - a core consumer price index of 0.2% or higher will likely send mortgage interest rates sharply higher before the day is over. And here is the "kicker" - even if tomorrow's core rate of inflation posts a reading of 0.1% -- fixed-income investors will likely begin to anticipate an upward trajectory for next month's core consumer price index value.
As they do every Wednesday, the Mortgage Bankers of America have released their Mortgage Application Survey data for the week ended February 11th. The overall index fell 9.5% for the week with purchase applications down by 5.9% and refinance requests lower by 11.4%. The average national contract rate for 30-year fixed-rate mortgages finished at 5.12%, down by 2 basis points from the prior week, up by 35 basis points from four weeks ago, and up by 17 basis points from the year ago mark. Six out of every ten applications taken last week were refinance loan requests.
Up to this point in the recovery from the Great Recession producers have not had the pricing-power necessary to push through much, if any, of the increases in their raw material costs to the consumer. That story could change quickly. Investors will scrutinize the details of tomorrow morning's January consumer price index (8:30 a.m. ET) for any sign that inflation pressures on Main Street are ramping up.
Most analysts believe the core rate of the consumer price index (a value excluding the more volatile food and energy costs) for January will not post a gain of more than 0.1%. If so, look for mortgage interest rates to move sideways to perhaps slightly lower - but be ready - a core consumer price index of 0.2% or higher will likely send mortgage interest rates sharply higher before the day is over. And here is the "kicker" - even if tomorrow's core rate of inflation posts a reading of 0.1% -- fixed-income investors will likely begin to anticipate an upward trajectory for next month's core consumer price index value.
As they do every Wednesday, the Mortgage Bankers of America have released their Mortgage Application Survey data for the week ended February 11th. The overall index fell 9.5% for the week with purchase applications down by 5.9% and refinance requests lower by 11.4%. The average national contract rate for 30-year fixed-rate mortgages finished at 5.12%, down by 2 basis points from the prior week, up by 35 basis points from four weeks ago, and up by 17 basis points from the year ago mark. Six out of every ten applications taken last week were refinance loan requests.
Monday, February 7, 2011
There is nothing in the way of economic news for mortgage investors to consider today as they brace for this week's upcoming barrage of Treasury auctions.
Uncle Sam will be in the credit markets looking to borrow $72 billion in the form of $32 billion of 3-year notes on Tuesday, $24 billion of 10-year notes on Wednesday, and $16 billion of 30-year bonds on Thursday. Macro-economic news will be limited to Thursday's 8:30 a.m. ET initial weekly jobless claims report and the December Wholesale Inventory data at 10:00 a.m. ET the same day. If yields across the whole spectrum of the credit market have risen to high enough levels that these three offerings should draw decent demand. If so, look for mortgage interest rates to move sideways with a slight potential to creep fractionally lower should bidding at the auctions prove stronger-than-expected.
Uncle Sam will be in the credit markets looking to borrow $72 billion in the form of $32 billion of 3-year notes on Tuesday, $24 billion of 10-year notes on Wednesday, and $16 billion of 30-year bonds on Thursday. Macro-economic news will be limited to Thursday's 8:30 a.m. ET initial weekly jobless claims report and the December Wholesale Inventory data at 10:00 a.m. ET the same day. If yields across the whole spectrum of the credit market have risen to high enough levels that these three offerings should draw decent demand. If so, look for mortgage interest rates to move sideways with a slight potential to creep fractionally lower should bidding at the auctions prove stronger-than-expected.
Wednesday, February 2, 2011
Trading activity in the mortgage market is light this morning as inclement weather --together with limited risk taking in front of Friday's much anticipated January nonfarm payroll data -- kept most investors on the sidelines. The selling pressure in today's early going is not so much a story about large numbers of traders looking to off-load mortgage-backed securities as it is about a shortage of buyers willing to stick their financial neck-out before a big event like the upcoming jobs number.
A report shortly after the market open by payroll processor ADP Employer Services suggesting the private sector added a stronger-than-expected 187,000 last month was largely discounted by most investors. The one consistent thing about this data set is that it substantially under- or over-shoots the more important numbers from the government.
The key question on the minds of all credit market participants is whether anything but weak hiring will be evident in Friday's nonfarm payroll report. Most investors anticipate the economy created 150,000 more jobs in January than were lost -- while the national jobless rate is expected to tick up to 9.5% from December's 9.4%. Numbers that match or fall below these projections will tend to be supportive of steady to perhaps fractionally lower mortgage interest rates. In the unlikely case the actual numbers are stronger than currently projected -- look for your investors to push mortgage rates higher.
Payrolls are harder to judge this time around given the incessant weather disruptions that have blanketed the nation. Raymond Stone, managing director and economists at Stone & McCarthy Research Associates points out that over the past seven years, the initial print on January payrolls has come in consistently below market expectations. In addition, December payrolls have been revised down 23 times over the past 31 years (75% of the time), with the average revision amounting to about 36,000 jobs. The "so what" factor attached to all this statistical mumbo jumbo is that while it is possible Friday's nonfarm payroll data will prove strong enough to push mortgage interest rates rudely higher from current levels - it is not a very probable outcome.
As they do every Wednesday, the Mortgage Bankers of America have released their Mortgage Application Survey figures for the week ended January 25th. The MBA said mortgage applications were up a collective 11.3% during the period - with refinance demand up by 11.7% and purchase loan requests up 9.5%. The average contract rate for 30-year fixed-rate mortgages finished up at 4.81%, up by 1 basis point from the prior week, down by 1 basis point from the month-ago mark and down 19 basis points from the year-ago level. Seven out of every ten loan applications taken last week were refinance requests.
A report shortly after the market open by payroll processor ADP Employer Services suggesting the private sector added a stronger-than-expected 187,000 last month was largely discounted by most investors. The one consistent thing about this data set is that it substantially under- or over-shoots the more important numbers from the government.
The key question on the minds of all credit market participants is whether anything but weak hiring will be evident in Friday's nonfarm payroll report. Most investors anticipate the economy created 150,000 more jobs in January than were lost -- while the national jobless rate is expected to tick up to 9.5% from December's 9.4%. Numbers that match or fall below these projections will tend to be supportive of steady to perhaps fractionally lower mortgage interest rates. In the unlikely case the actual numbers are stronger than currently projected -- look for your investors to push mortgage rates higher.
Payrolls are harder to judge this time around given the incessant weather disruptions that have blanketed the nation. Raymond Stone, managing director and economists at Stone & McCarthy Research Associates points out that over the past seven years, the initial print on January payrolls has come in consistently below market expectations. In addition, December payrolls have been revised down 23 times over the past 31 years (75% of the time), with the average revision amounting to about 36,000 jobs. The "so what" factor attached to all this statistical mumbo jumbo is that while it is possible Friday's nonfarm payroll data will prove strong enough to push mortgage interest rates rudely higher from current levels - it is not a very probable outcome.
As they do every Wednesday, the Mortgage Bankers of America have released their Mortgage Application Survey figures for the week ended January 25th. The MBA said mortgage applications were up a collective 11.3% during the period - with refinance demand up by 11.7% and purchase loan requests up 9.5%. The average contract rate for 30-year fixed-rate mortgages finished up at 4.81%, up by 1 basis point from the prior week, down by 1 basis point from the month-ago mark and down 19 basis points from the year-ago level. Seven out of every ten loan applications taken last week were refinance requests.
Monday, January 31, 2011
Protests to the end the 30-year rule of Egyptian President Mubarak continued over the weekend. Egypt's importance to the global economy is relatively small, but its importance to the transportation of oil from other parts of the Middle East is huge.
While investors appear to be attentive to the ever changing dimensions of this event - there is currently no panic. If the Egyptian crisis were to spread to other countries in the region -- or if the flow of oil through the Suez Canal were to be impeded -- things could change in a blink-of-an-eye.
Unsure how much the safe-haven appeal of dollar denominated assets like Treasury obligations and mortgage-backed securities would be overshadowed by the rising inflation pressures created by the almost certain massive surge in energy prices should civil war breakout in the region. Hope is that such a scenario proves to be nothing more than a fleeting "what if" question. If such an event were to actually manifest itself, suspect investors would opt for cash and near-cash (Treasury obligations of 1-year or less) rather than expose their capital to longer-term investments and the attendant financially corrosive power of rising inflation. That's not a story that would be supportive of the prospects for steady to perhaps fractionally lower mortgage interest rates longer-term.
Mortgage investors shrugged-off this morning's report from the Commerce Department indicating consumer spending rose by 0.7% last month. The details of the December personal income and spending report showed that much of the surge in consumer spending came from a notable drawdown in household savings accounts as personal incomes grew a very modest 0.4% during the period. In addition, the renewal of special and extended government unemployment insurance benefits last month put money in the hands of consumers likely to spend it. So while some "talking heads" are harping about the big surge in consumer spending -- most mortgage investors largely discounted the whole thing - especially since the personal consumption expenditure index component of the report, the Fed's preferred measure of inflation at the consumer level, was unchanged in December after edging up 0.1% in November.
Yet to come this week -- Tuesday and Thursday will be dominated by the Institute of Supply Management's reports of activity in the manufacturing and service sectors of the economy to be followed by the release of the January nonfarm payroll figures on Friday morning. The reports scattered through the earlier part of the week are expected to be generally mortgage market neutral and will therefore be overshadowed by the jobs number on Friday. Most analysts anticipate the economy created 150,000 more jobs in January than were lost while the national jobless rate is expected to tick up to 9.5% from December's 9.4%. Numbers that match or fall below these projections will tend to be supportive of steady to perhaps fractionally lower mortgage interest rates. In the unlikely case the actual numbers are stronger than currently projected look for your investors to push mortgage rates higher.
While investors appear to be attentive to the ever changing dimensions of this event - there is currently no panic. If the Egyptian crisis were to spread to other countries in the region -- or if the flow of oil through the Suez Canal were to be impeded -- things could change in a blink-of-an-eye.
Unsure how much the safe-haven appeal of dollar denominated assets like Treasury obligations and mortgage-backed securities would be overshadowed by the rising inflation pressures created by the almost certain massive surge in energy prices should civil war breakout in the region. Hope is that such a scenario proves to be nothing more than a fleeting "what if" question. If such an event were to actually manifest itself, suspect investors would opt for cash and near-cash (Treasury obligations of 1-year or less) rather than expose their capital to longer-term investments and the attendant financially corrosive power of rising inflation. That's not a story that would be supportive of the prospects for steady to perhaps fractionally lower mortgage interest rates longer-term.
Mortgage investors shrugged-off this morning's report from the Commerce Department indicating consumer spending rose by 0.7% last month. The details of the December personal income and spending report showed that much of the surge in consumer spending came from a notable drawdown in household savings accounts as personal incomes grew a very modest 0.4% during the period. In addition, the renewal of special and extended government unemployment insurance benefits last month put money in the hands of consumers likely to spend it. So while some "talking heads" are harping about the big surge in consumer spending -- most mortgage investors largely discounted the whole thing - especially since the personal consumption expenditure index component of the report, the Fed's preferred measure of inflation at the consumer level, was unchanged in December after edging up 0.1% in November.
Yet to come this week -- Tuesday and Thursday will be dominated by the Institute of Supply Management's reports of activity in the manufacturing and service sectors of the economy to be followed by the release of the January nonfarm payroll figures on Friday morning. The reports scattered through the earlier part of the week are expected to be generally mortgage market neutral and will therefore be overshadowed by the jobs number on Friday. Most analysts anticipate the economy created 150,000 more jobs in January than were lost while the national jobless rate is expected to tick up to 9.5% from December's 9.4%. Numbers that match or fall below these projections will tend to be supportive of steady to perhaps fractionally lower mortgage interest rates. In the unlikely case the actual numbers are stronger than currently projected look for your investors to push mortgage rates higher.
Friday, January 28, 2011
The mortgage market stumbled out of the gates a little bit this morning as investors reacted to the first estimate of the economy's overall growth rate during the last three months of 2010.
The headline Q4 Gross Domestic Product number posted a gain of 3.2% -- slightly below most economists' expectations for a reading of 3.5%. The devil was in the details - especially the detail that showed consumer spending had its biggest gain in four years.
Less experienced traders were quick to latch onto this seemingly super-strong measure of economic growth and they aggressively pushed mortgage interest rates higher in the day's early trading. After letting them have their fun for a little while -- more experienced traders moved in with their substantial financial firepower and turned the trading activity in the mortgage market completely around.
Numbers can be deceiving - especially if one fails to consider the broader view. More experienced traders were already watchfully aware that much of the driving force behind the surge in consumer spending last year resulted from heavy price discounting by retailers. The national consumer income numbers show households chose to dip into their savings to buy the offered goods and services at their "blue light" and "one-time only" special price.
The fourth quarter employment cost index (released earlier this morning as well) showed wage and salary growth eked upward by a mere 0.4%. Extremely high joblessness, along with dim prospects for wage growth, will by necessity cause households to hold spending in check as we move into 2011.
More experienced traders are aware that the improvement in the economy that all the media "talking heads" are so breathlessly reporting this morning was not driven by real growth from the consumer - but rather by all the fiscal and monetary stimulus provided by the government in the form of more than $2 trillion dollars of direct debt purchases by the Fed -- and the dynamics of multiple tax cuts present and future. Once the government contribution is removed from the equation -- economic growth will not likely be nearly as robust as it now appears. That is probably bad news in terms of any notable acceleration in mortgage loan demand through at least mid-year -- but good news in terms of the prospects for steady to fractionally lower mortgage interest rates.
Next week will be a busy week in terms of economic data to be released. Mortgage investors will get a look at the pace of inflation at the consumer level contained in Monday's December Personal Income and Spending report. Tuesday and Thursday will be dominated by the Institute of Supply Management's reports of activity in the manufacturing and service sectors of the economy. The week will round-out with the release of the January nonfarm payroll figures on Friday morning. The reports scattered through the earlier part of the week are expected to be generally mortgage market neutral and will therefore be overshadowed by the jobs number on Friday.
Most analysts anticipate the economy created 150,000 more jobs in January than were lost while the national jobless rate is expected to tick up to 9.5% from December's 9.4%. Numbers that match or fall below these projections will tend to be supportive of steady to perhaps fractionally lower mortgage interest rates. In the unlikely case the actual numbers are stronger than currently projected look for your investors to push mortgage rates higher.
The headline Q4 Gross Domestic Product number posted a gain of 3.2% -- slightly below most economists' expectations for a reading of 3.5%. The devil was in the details - especially the detail that showed consumer spending had its biggest gain in four years.
Less experienced traders were quick to latch onto this seemingly super-strong measure of economic growth and they aggressively pushed mortgage interest rates higher in the day's early trading. After letting them have their fun for a little while -- more experienced traders moved in with their substantial financial firepower and turned the trading activity in the mortgage market completely around.
Numbers can be deceiving - especially if one fails to consider the broader view. More experienced traders were already watchfully aware that much of the driving force behind the surge in consumer spending last year resulted from heavy price discounting by retailers. The national consumer income numbers show households chose to dip into their savings to buy the offered goods and services at their "blue light" and "one-time only" special price.
The fourth quarter employment cost index (released earlier this morning as well) showed wage and salary growth eked upward by a mere 0.4%. Extremely high joblessness, along with dim prospects for wage growth, will by necessity cause households to hold spending in check as we move into 2011.
More experienced traders are aware that the improvement in the economy that all the media "talking heads" are so breathlessly reporting this morning was not driven by real growth from the consumer - but rather by all the fiscal and monetary stimulus provided by the government in the form of more than $2 trillion dollars of direct debt purchases by the Fed -- and the dynamics of multiple tax cuts present and future. Once the government contribution is removed from the equation -- economic growth will not likely be nearly as robust as it now appears. That is probably bad news in terms of any notable acceleration in mortgage loan demand through at least mid-year -- but good news in terms of the prospects for steady to fractionally lower mortgage interest rates.
Next week will be a busy week in terms of economic data to be released. Mortgage investors will get a look at the pace of inflation at the consumer level contained in Monday's December Personal Income and Spending report. Tuesday and Thursday will be dominated by the Institute of Supply Management's reports of activity in the manufacturing and service sectors of the economy. The week will round-out with the release of the January nonfarm payroll figures on Friday morning. The reports scattered through the earlier part of the week are expected to be generally mortgage market neutral and will therefore be overshadowed by the jobs number on Friday.
Most analysts anticipate the economy created 150,000 more jobs in January than were lost while the national jobless rate is expected to tick up to 9.5% from December's 9.4%. Numbers that match or fall below these projections will tend to be supportive of steady to perhaps fractionally lower mortgage interest rates. In the unlikely case the actual numbers are stronger than currently projected look for your investors to push mortgage rates higher.
Thursday, January 27, 2011
The Treasury Department will sell $29 billion of 7-year notes at 1:00 p.m. ET today.
There is a chance this sale will be the strongest of three-offerings the Treasury Department put on the auction-block this week (compared to Tuesday's 2-year notes and yesterday's 5-year notes).
Portfolio managers who align their investment funds with benchmark indexes often have to make last-minute adjustments to the average maturity of their holdings at the end of each month. Seven-year notes are always the last Treasury notes sold at the end of the month, so they work as a quick fix for managers who need to do a little tweaking to their positions.
The Fed is also expected to be a buyer at today's auction - spending $5 to $10 billion of the roughly $300 billion they have left of their original "QE2" checking account balance ($600 billion in case you don't recall).
A well bid 7-year note auction would likely prove very supportive for the prospects of steady to perhaps fractionally lower mortgage interest - at least between today and the release of next week Friday's January nonfarm payroll figures.
In other news of the day, the Labor Department reported the number of Americans filing first-time claims for unemployment benefits rose by a surprising 51,000 during the week ended January 22nd. Mortgage investors largely shrugged this outsized gain off - reasoning that harsh weather conditions in some parts of the country kept workers at home and caused a backlog in the processing of claims from prior weeks. The latest jump in the initial weekly jobless claims number does not have any implications for next week's larger and more important nonfarm payroll report -- as this week's initial jobless claims data fell outside the more meaningful report's survey period.
There is a chance this sale will be the strongest of three-offerings the Treasury Department put on the auction-block this week (compared to Tuesday's 2-year notes and yesterday's 5-year notes).
Portfolio managers who align their investment funds with benchmark indexes often have to make last-minute adjustments to the average maturity of their holdings at the end of each month. Seven-year notes are always the last Treasury notes sold at the end of the month, so they work as a quick fix for managers who need to do a little tweaking to their positions.
The Fed is also expected to be a buyer at today's auction - spending $5 to $10 billion of the roughly $300 billion they have left of their original "QE2" checking account balance ($600 billion in case you don't recall).
A well bid 7-year note auction would likely prove very supportive for the prospects of steady to perhaps fractionally lower mortgage interest - at least between today and the release of next week Friday's January nonfarm payroll figures.
In other news of the day, the Labor Department reported the number of Americans filing first-time claims for unemployment benefits rose by a surprising 51,000 during the week ended January 22nd. Mortgage investors largely shrugged this outsized gain off - reasoning that harsh weather conditions in some parts of the country kept workers at home and caused a backlog in the processing of claims from prior weeks. The latest jump in the initial weekly jobless claims number does not have any implications for next week's larger and more important nonfarm payroll report -- as this week's initial jobless claims data fell outside the more meaningful report's survey period.
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