Tuesday, August 15, 2017

What's going on and why does it matter?

Mortgage bonds opened lower this morning as tensions continue to ease between the US and North Korea. Also, NY Fed President Dudley indicated in a speech yesterday afternoon that the Fed is on track to increase short-term rates later this year if the economy continues to improve. Today's economic reports seem to confirm this, with the NY Fed "Empire State" Manufacturing Index more than doubling, and retail sales also coming in much stronger than market expectations. It seems like mortgage bond prices may fall back down to their moving averages. The Fed is scheduled to purchase up to $1.65 billion of 30-year conventional mortgage bonds today, which may help.

What should you do about it?Lock your rate to be safe.

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MBS Chart

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Economic reports that may impact mortgage rates this week:

DateReportPeriodPriorEstimateActual
Tue
15 Aug
NY Fed
Mfg. Index
Aug9.810.025.2
Tue
15 Aug
Retail SalesJul0.3%0.4%0.6%
Tue
15 Aug
Business
Inventories
Jun0.3%0.4%
Wed
16 Aug
Building
Permits
Jul1.275M1.25M
Wed
16 Aug
Housing
Starts
Jul1.215M1.22M
Wed
16 Aug
Fed
Minutes
Jul--
Thu
17 Aug
Initial Jobless
Claims
Week of
Aug 7
244,000240,000
Thu
17 Aug
Industrial
Output
Jul0.4%0.3%
Thu
17 Aug
Capacity
Utilization
Jul76.6%76.7%
Thu
17 Aug
Manuf.
Output
Jul0.2%0.2%
Fri
18 Aug
U of Mich.
Consumer
Sentiment
Aug93.494.0

Thursday, August 10, 2017

What's going on and why does it matter?

Global financial markets remain in risk aversion mode as tensions continue to escalate between the US and North Korea. This is causing mortgage bonds to continue trading near their best levels of the year.  It's worth mentioning, however, that the rally in mortgage bonds seems to be losing strength, and that the market quickly reversed course the last time mortgage bonds traded at these lofty levels.  Even so, the Fed continues to be very supportive of the mortgage market today, with scheduled purchases of up to $1.375 billion of GNMA mortgage bonds. As for the economic calendar, wholesale inflation as measured by the PPI index came out this morning weaker than expected. There is also one Fed policymaker who is scheduled to give a speech today.

What should you do about it?

Lock your rate to be safe.

MBS Chart

Wednesday, August 9, 2017

What's going on and why does it matter?

Mortgage bonds opened higher this morning as tensions continue to escalate between the US and North Korea.  Mortgage bonds are currently trading near their best levels of the year.  Keep in mind that the market quickly reversed course the last time mortgage bonds traded at these lofty levels.  Even so, the Fed is very supportive of the mortgage market today, with scheduled purchases of up to $1.65 billion of 30-year conventional mortgage bonds.

What should you do about it?Lock your rate to be safe.

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MBS Chart

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Economic reports that may impact mortgage rates this week:

DateReportPeriodPriorEstimateActual
Tue
8 Aug
JOLTS
Job Openings
June5.666M5.775M6.163M 
Wed
9 Aug
Labor Costs
prelim.
Q2
2017
2.2%1.2%0.6%
Wed
9 Aug
Productivity
prelim.
Q2
2017
0.0%0.7%0.9%
Wed
9 Aug
Wholesale
Inventories
June0.6%0.6% 
Wed
9 Aug
Wholesale
Sales
June-0.5%0.1% 
Thu
10 Aug
Initial Jobless
Claims
Week of
July 31
240,000240,000 
Thu
10 Aug
PPI
final demand
July0.1%0.1% 
Fri
11 Aug
Core CPIJuly0.1%0.2% 
 
 

Friday, August 4, 2017 End-of-Day Report

The employment report this morning capped a week full of economic data that continues to paint a mixed picture of domestic growth. First, earlier in the week, we saw tepid PCE inflation and spending. Then, midweek we saw moderate ISM surveys, with strong growth but weakness in the non-manufacturing sector. Lastly, this morning the jobs growth was strong and unemployment is at a 16-year low.

Mortgages sold off in a big way initially this morning but recovered in the afternoon to finish down -14 bps for the day, and up overall for the week. Next week, Monday, Tuesday and Wednesday will be relatively slow but Thursday brings PPI and Friday the Consumer Price Index. Look for continued range-bound volatility barring any geo-political surprises, especially out of North Korean tensions.

Wednesday, August 2, 2017

Mid Day update - The ADP employment report released this morning showed weaker private payroll growth at 178k than surveyed at 190k. While still above last month’s growth of 158k, it does cast doubts about the strength of the non-farm payroll numbers to be released on Friday. The MBA's weekly mortgage application survey was also released this morning. Applications fell 2.8% last week with refinances down 3.8% and purchases down 2.0%. The average 30-year FRM rate held firm week-over-week at 4.17%.

Markets are slower today, coming off yesterday when a number of desks were seeing heavy flows due to the first business day of the month. Treasury yields are down very slightly with MBS down 4 bps now.

Opening comments 


What's going on and why does it matter?

Mortgage bonds are trading at their highest levels since June, as they've been driven higher by weaker than expected economic data this week.  However, today's ADP employment numbers came out close to market expectations.  This report is normally interpreted as a sneak preview into Friday's official payroll numbers. This may cause mortgage bonds to give back some of the gains from their recent rally. The Fed is scheduled to purchase up to $1.65 billion of 30-year conventional mortgage bonds today, and this may help to stabilize the market.

What should you do about it?

It's probably a good idea to lock your rate while bond prices remain near the top of their recent trading range.

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MBS Chart

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Economic reports that may impact mortgage rates this week:

DateReportPeriodPriorEstimateActual
Mon
31 Jul
Chicago
PMI
July65.760.058.9
Tue
1 Aug
Personal
Income
June0.4%0.4%0.0%
Tue
1 Aug
Core PCE
Prices
June0.1%0.1%0.1%
Tue
1 Aug
Construction
Spending
June0.0%0.4%-1.3% 
Tue
1 Aug
ISM Mfg.
PMI
July57.856.556.3
Tue
1 Aug
Total
Vehicle Sales
July16.51M16.8M16.73M
Wed
2 Aug
ADP National
Employment
July158,000185,000178,000
Thu
3 Aug
Initial Jobless
Claims
Week of
July 24
244,000242,000
Thu
3 Aug
Factory
Orders
June-0.8%2.9%
Thu
3 Aug
ISM Non-Mfg
PMI
July57.457.0
Fri
4 Aug
Non-Farm
Payrolls
July222,000183,000
Fri
4 Aug
Average
Earnings
July0.2%0.3%

Thursday, 7/27/2017 Mid-Day

Bond market investors are scratching their heads this morning as the UK's Financial Conduct Authority CEO made a speech suggesting an end to LIBOR by 2021 and a beginning to alternative market benchmarks in the meantime. LIBOR is an average interest rate from 20 banks. It is used as a starting point for other interest-rate setting institutions globally but has been under broad criticism for a long period as it is easily manipulated and based on a set of relatively illiquid trades.

If managed appropriately, the change to other benchmarks could be seamless but nonetheless the suggestion caused tepid nervousness in Treasury bonds that is bleeding over to MBS. So far, mortgages are trading down 8 bps.

Tuesday, July 25, 2017

What's going on and why does it matter?

The mortgage bond rally seems to have stalled in spite of heavy bond purchases from the Fed yesterday. It will be interesting to see if mortgage bond prices can hold above their 30-day and 200-day moving averages, especially in light of the large supply of corporate and government bonds that are scheduled to hit the market this week. The Fed is scheduled to purchase up to $1.1 billion of GNMA mortgage bonds today, but they won't be buying any bonds tomorrow due to the release of their monetary policy statement. The market doesn't expect the Fed to increase short-term rates tomorrow, but investors will be looking for any changes to the language used in the Fed's statement about their future bond-buying plans. As for today, the market will likely take its direction from the headlines coming out of Washington. In addition to the continued headlines about the Trump/Russia saga, the Senate is scheduled to vote on whether to begin debate on the health care bill.

What should you do about it?

Watch for mortgage bonds to remain above their 30-day and 200-day moving averages, but be prepared to lock your rate quickly if bonds start to fall back below these critical levels.