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Maine Mortgage Market Update 11.29.2010
Mortgage bond prices remain positive this morning extending the gains from last Friday.
There is no data today. Traders will likely look to stocks to help guage mortgage interest rate direction. The DOW is currently down over 130 points.
Global economic uncertainty continues to dominate trading. The EU approved a $113b bailout for Ireland over the weekend. Rumors continue to swirl about Portugal and Spain being next.
Maine Mortgage Market Update 11.23.2010
Mortgage bond prices opened higher Tuesday morning applying downward pressure to mortgage rates. Rates are finding support following an incident where North and South Korea exchanged artillery fire overnight. In times of global uncertainty, traders seek the safety of US debt. This is call flight to safety buying. Lets hope the US is always seen as a safe place to park money.
In news released this morning, the US economy expanded at a 2.5% rate in the third quarter. This data was near expectation for a read of 2.4% and had no effect on trade.
Market analysts are now waiting for stocks to begin trade at 9:30 am ET and for the release of existing home sales data set for 10:00 am ET to help gauge interest rate direction. This afternoon the Treasury will auction $35B in 5-year notes with results by 1:15 pm ET.
Maine Mortgage Market Update 11.22.2010
Mortgage bond prices remain higher Monday morning erasing the losses seen Friday afternoon and more. Rates are receiving support from after Ireland received an estimated $95B euro bailout from the EU and IMF. In addition, lower stocks are also supporting rates.
With no economic news set for release today, traders will spend the day watching stocks to help gauge interest rate direction. At the 10:00 am price point, the DOW was down 21-points.
Maine Mortgage Market – looking ahead 11.22 to 11.26
Mortgage bond prices got crushed last week pushing rates considerably higher. Trading started negatively Monday when stronger than expected retail sales figures piled on top of the weakness seen the prior week. There was considerable profit taking as traders sold bonds. Tame inflation readings helped buffer some of the price increases and the Fed’s bond purchasing also helped but they were not enough to stem the negative trend of overall rising rates. For the week interest rates finished worse by about 1 1/2 discount points.
The bond market will be closed Thursday for Thanksgiving. The market will also close at 2 pm ET Friday. This shortened trading week and the likely thin trading conditions could result in continued wild market swings.
LOOKING AHEAD
| Economic Indicator |
Release Date & Time |
Consensus Estimate |
Analysis |
| Q3 GDP second estimate | Tuesday, Nov. 23, 8:30 am, et |
2.4% | Important. The aggregate measure of US economic production. Weakness may lead to lower rates. |
| Existing Home Sales | Tuesday, Nov. 23, 10:00 am, et |
4.4m | Low importance. An indication of mortgage credit demand. Weakness decrease may lead to lower rates. |
| Personal Income and Outlays | Wednesday, Nov. 24, 8:30 am, et |
Up 0.5%, Up 0.5% |
Important. A measure of consumers’ ability to spend. Weakness may lead to lower mortgage rates. |
| PCE Core Inflation | Wednesday, Nov. 24, 8:30 am, et |
Up 0.1% | Important. A measure of price increases for all domestic personal consumption. Weaker figure may help rates improve. |
| Durable Goods Orders | Wednesday, Nov. 24, 8:30 am, et |
Down 0.3% | Important. An indication of the demand for “big ticket” items. Weakness may lead to lower rates. |
| U of Michigan Consumer Sentiment | Wednesday, Nov. 24, 10:00 am, et |
69.4 | Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates. |
| New Home Sales | Wednesday, Nov. 24, 10:00 am, et |
312k | Important. An indication of economic strength and credit demand. Weakness may lead to lower rates. |
| Fed Minutes | Wednesday, Nov. 24, 2:00 pm, et |
None | Important. Details of the last Fed meeting will be thoroughly analyzed. |
More Auctions
The US Treasury will auction $35 billion of 2Y notes, $35 billion of 5Y notes, and $29 billion of 7Y notes this week. US Treasury bonds do not directly dictate fixed mortgage interest rate pricing however they do have an indirect impact. Both Treasuries and mortgage bonds often track in the same direction but this is not always the case. There are many times that Treasuries and mortgage bonds move inversely.
The markets usually focus on the foreign demand component of the auction results. Despite the overwhelming size of the US economy, foreign investors can still have an effect on moving the financial markets. When foreign economies struggle foreign investors often purchase US based investments including mortgage bonds. This increase in demand usually causes mortgage bond prices to rise and interest rates to fall. This flight to quality buying was one of the factors that helped mortgage interest rates remain historically low in years past.
The Treasury auctions this week will be important in determining the current appetite of foreign investors for dollar denominated securities. If this week’s auctions are poorly bid mortgage bond prices could fall pressuring mortgage interest rates higher.
Maine Mortgage Market Update 11.19.2010
Mortgage bonds remain near unchanged holding the gains from yesterday afternoon.
We were able to close positive yesterday despite the DOW closing up 173 points. The DOW is currently down 49.
There is no data set for release today, but news that China has tightened their lending standards – for the second time in two weeks – is grabbing the market’s attention this morning.
Over and above their normal banking reserve requirements, China is now requiring their banks to set aside additional capital in reserves. This is being done in an effort to drain money from their financial system, and stave off inflation…which now stands at a overheated 4.4% and represents a 2 year high. So while US Stocks are lower this morning – as is the US Dollar – Bonds are not making any gains, due to the inflation threat in China. Why? Because the inflation threat in China will continue to be combated with further rate hikes by the People’s Bank of China…and if rates move higher abroad, global investors in search of the highest yield may find foreign Bonds increasingly more attractive.
Yesterday, the Treasury announced that it will purchase $99B in 2, 5 and 7-Year Notes during the holiday shortened week on Monday, Tuesday and Wednesday. With trading volume a little thinner due to fewer Traders working during a holiday week, and all this fresh new Bond supply coming to market – we could see the present high volatility pick up a notch further still.
Maine Mortgage Market Update 11.18.2010
Mortgage bond prices opened considerably lower pushing rates higher following the data this morning. The lower coupons are taking it harder than others currently.
Weekly jobless claims came in at 439k, expected at 440k, not bond friendly.
We have Leading economic indicators and Philadelphia Fed data later this morning.
Maine Mortgage Market Update 11.17.2010
Mortgage bond prices opened slightly higher Wednesday morning adding to the gains seen Tuesday afternoon. Rates are finding support from bond friendly economic news released this morning.
In news released at the open, consumer prices rose 0.2% last month and the core rate, which excludes the volatile food and energy costs were unchanged. Economists expected CPI to rise 0.4% and 0.1% respectively. That data was bond friendly.
On the housing front, housing starts stood at 519k, lower than expectations for a read of 600K. This is further evidence the housing market is facing some stiff headwinds.
Traders are now waiting for stocks to begin trade at 9:30 to help gauge interest rate direction.
Maine Mortgage Market Update 11.16.2010
Mortgage bond prices are higher this morning helped recover some of the losses from yesterday.
Bonds pare recent losses after PPI data. PPI up 0.4%, expected up 0.8%, core down 0.6%, expected up 0.1%. This data was very bond friendly and a great start to the trading day following the recent nastiness we have seen.
We have industrial production and capacity use data @ 9:15 expected up 0.3%, Capacity use @ 74.8%, expected @ 74.9%
Rates are volatile and that is not going to go away anytime soon. These are not normal times, governments around the world are providing stimulus making valuation of assets almost impossible. In the US, the Fed is buying debt, in Europe there are four countries that could default. China’s economy is strong creating massive pressure on commodity prices which could spark inflation. The Feds move to buy debt pressures the dollar lower and since commodities are priced in US dollars there is additional upward pressure on commodity prices. You get the idea, this is complicated.
Maine Mortgage Market Update 11.15.2010
The steep selloff from Friday continues this morning. Mortgage bond prices remain considerably weaker pushing rates much higher. Stronger than expected retail sales data isn’t helping.
Retail sales rose 1.2%, expected up 0.7%, not bond friendly.
With all the volatility seen recently, you can expect your pricing desk to price defensively. Unscheduled price changes will come fast and exceed market movement as lock desks attempt to protect against the risk of falling prices.
Bonds are in the tank as investors move to the sidelines to see how QEII will play out. Bonds are concerned inflation will shoot higher.
Events effecting the Maine Mortgage Market 11.15 to 11.19
Mortgage bond prices were lower for last week pushing mortgage interest rates higher. The Treasury auctions were mixed with generally decent foreign demand but rather lackluster overall results. The weekly jobless claims data came in lower than expected which was not bond friendly and pushed rates considerably higher Wednesday. The bond market was closed Thursday for the holiday, which likely contributed to the volatility with thin trading conditions surrounding shortened trading week. For the week interest rates finished worse by about 7/8 of a discount point.
The retail sales data Monday will set the tone for trading this week. The inflation data on Tuesday and Wednesday have the greatest potential to move the financial markets.
LOOKING AHEAD – 11.15 to 11.19
| Economic Indicator |
Release Date & Time |
Consensus Estimate |
Analysis |
| Retail Sales | Monday, Nov. 15, 8:30 am, et |
Up 0.6% | Important. A measure of consumer demand. A smaller than expected increase may lead to lower mortgage rates. |
| Business Inventories | Monday, Nov. 15, 10:00 am, et |
Up 0.6% | Low importance. An indication of stored-up capacity. A significantly larger increase may lead to lower rates. |
| Producer Price Index | Tuesday, Nov. 16, 8:30 am, et |
Up 0.7%, Core up 0.1% |
Important. An indication of inflationary pressures at the producer level. Weaker figures may lead to lower rates. |
| Industrial Production | Tuesday, Nov. 16, 9:15 am, et |
Up 0.3% | Important. A measure of manufacturing sector strength. A lower than expected increase may lead to lower rates. |
| Capacity Utilization | Tuesday, Nov. 16, 9:15 am, et |
75% | Important. A figure above 85% is viewed as inflationary. Weakness may lead to lower rates. |
| Consumer Price Index | Wednesday, Nov. 17, 8:30 am, et |
Up 0.3%, Core up 0.1% |
Important. A measure of inflation at the consumer level. Lower than expected increases may lead to lower rates. |
| Housing Starts | Wednesday, Nov. 17, 8:30 am, et |
605k | Important. A measure of housing sector strength. Larger than expected decreases may lead to lower rates. |
| Leading Economic Indicators | Thursday, Nov. 18, 10:00 am, et |
Up 0.5% | Important. An indication of future economic activity. A smaller increase may lead to lower rates. |
| Philadelphia Fed Survey | Thursday, Nov. 18, 10:00 am, et |
2.0 | Moderately important. A survey of business conditions in the Northeast. Weakness may lead to lower rates. |
Low Rates
Mortgage interest rates remain near historic lows. Borrowers that choose to float in this environment expose themselves to an upside risk in mortgage interest rates. The Fed has specifically stated, “Measures of underlying inflation are currently at levels somewhat below those the Committee judges most consistent, over the longer run, with its mandate to promote maximum employment and price stability.” This means the Fed believes inflation levels should increase. Inflation, real or perceived, generally erodes the value of fixed income securities causing prices to fall and rates to rise. If the Fed has its way it is very possible to see mortgage interest rates increase. However, there are no certainties even with the Fed’s stated goals. The Fed does not directly dictate mortgage interest rates but its activities have an indirect effect on rates.
Recent history attests to spikes and drops in rates on almost a weekly basis. Last week was a prime example. A cautious approach to interest rate exposure is prudent.
