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.

Monday, July 24, 2017

What's going on and why does it matter? Mortgage bonds are continuing to trade above all their significant moving averages, which is good news for mortgage pricing.  The economic calendar is quite full this week. The market will be focused on the Fed's monetary policy statement which is scheduled for Wednesday afternoon, along with the first estimate of economic growth (GDP) for the second quarter of this year, which is scheduled for release on Friday morning. The market doesn't expect the Fed to increase short-term rates this week.  However, there is some anticipation that Wednesday's statement could be altered to pave the way for the Fed to start reducing its massive bond-buying program at some point in the fall.  In the meantime, the Fed will be very supportive of the mortgage market, and today they are scheduled to purchase up to $2.075 billion of 30-year and 15-year conventional mortgage bonds. In other news, a large supply of corporate and government bonds are scheduled to hit the market this week, and this could put a damper on mortgage bond prices. 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. ..... Economic reports that may impact mortgage rates this week: Date Report Period Prior Estimate Actual Mon 24 Jul Existing Home Sales June 5.62M 5.58M   Tue 25 Jul Consumer Confidence July 118.9 116.5   Wed 26 Jul New Home Sales June 610,000 620,000   Wed 26 Jul Fed Funds Rate July 1.25% 1.25%   Thu 27 Jul Durable Goods Orders June -1.1% 3.0%   Thu 27 Jul Initial Jobless Claims Week of July 17 233,000 241,000   Fri 28 Jul U of Mich. Consumer Sentiment July 95.1 93.1   Fri 28 Jul GDPfirst estimate Q2 2017 0.7% 2.6%   Fri 28 Jul Core PCE Prices Q2 2017 2.0% 0.8%

Friday, 7/21/2017

MBS closed the day as it started, in unexciting fashion.  The real story of the week is the mounting pressure on central banks across the globe to be mindful of the less-than-desirable inflation numbers as they seek higher interest rates.  The Bank of Japan tried to argue that the country's labor dynamics are causing weak wage growth but Draghi and Yellen have both cited a concern around hiking rates any further in the face of this challenge too.  Next week markets will get more information on this issue when the Fed holds their monetary policy meeting on Tuesday and Wednesday.  Have a great weekend.

Wednesday, July 19, 2017

What's going on and why does it matter? Mortgage bonds have improved in recent trading sessions as weaker-than expected inflation and economic numbers may be making it less likely for the Fed to exit their bond-buying program as quickly as previously indicated.  Yesterday, the trigger for the bond market rally was the inability of Republicans to advance a healthcare bill, which is likely to delay other items on President Trump’s economic agenda. This leaves mortgage bond prices hovering near their 30-day and 200-day moving averages, which may operate as strong ceilings of technical resistance. It will be interesting to see if bond prices can break above these levels, or if they'll get turned down. The European Central Bank is scheduled to make an announcement tomorrow regarding interest rates in Europe, and this may move the financial markets.  The Fed is very supportive of the mortgage market through the remainder of this week, and they are scheduled to purchase up to $1.575 billion of 30-year conventional mortgages today. What should you do about it?Watch for mortgage bonds to break above their 30-day and 200-day moving averages, but be prepared to lock your rate quickly if bonds start to fall back toward their 100-day moving average.

Tuesday, July 18, 2017, with update

End of Trading Day update Mortgage and government bond trading was heavy today. MBS prices finished +22 bps higher as bond yields fell across the board and curves flattened. Investors were reacting to news that any hope of passing the healthcare bill in the Senate evaporated with the announcement of two oppositional GOP senators and the subsequent headlines that three GOP senators were already outspoken against any repeal effort of the current law. Not since the economic crisis have markets been so driven by headline risk out of Washington. If fundamentals still matter, tomorrow will tell. We will get the big data news of the week with Housing Starts and Building Permits. What's going on and why does it matter? Mortgage bonds opened higher today but it seems like they're meeting some stiff technical resistance at their 200-day moving average. Unless bonds can break above that level, bond prices may continue to drift sideways in a trading range between their 100-day and 200-day moving averages. News coming out of Washington doesn't bode well for President Trump's fiscal agenda, and it doesn't seem like there are enough votes to get the healthcare bill passed. This may dampen the mood for stocks, and mortgage bonds may benefit.  The economic calendar is light this week, and there is nothing significant on the calendar today. The Fed's mortgage bond buying activity today is limited to $500 million of 15-year conventional mortgages, but they'll be back in the market tomorrow with a sizable purchase of 30-year conventional mortgages. What should you do about it? Watch for mortgage bonds to bounce around between their 100-day and 200-day moving averages.  Be prepared to lock your rate quickly if the market changes directions. Economic reports that may impact mortgage rates this week: Date Report Period Prior Estimate Actual Mon 17 Jul NY Fed Mfg. Index July 19.8 15.0 9.8 Wed 19 Jul Building Permits June 1.17M 1.2M Wed 19 Jul Housing Starts June 1.09M 1.16M Thu 20 Jul Initial Jobless Claims Week of July 10 247,000 245,000

Thursday, July 13, 2017

What's going on and why does it matter? Global stock markets rallied yesterday, with the Dow closing at an all-time high.  Mortgage bonds also rallied in response to remarks by Fed Chair Janet Yellen that there is “considerable uncertainty” about inflation moving higher in the coming months.  If inflation doesn't move higher, the Fed may delay its plans to hike interest rates, and they may even extend their massive bond-buying program. This is good news for both bonds and stocks, hence yesterday's rally.  It will be interesting to see if the rally in mortgage bonds continues today because bond prices are hovering near their 100-day moving average, which has been operating as a strong level of technical resistance over the past two weeks.  Fed Chair Yellen is scheduled to testify again today, this time before the Senate Banking Committee. Her prepared remarks are identical to yesterday's remarks, but the market will be looking for any additional insights during the Q & A part of her testimony.  The Fed is scheduled to purchase a sizable $2.25 billion of 30-year and 15-year conventional mortgage bonds today, which may propel bond prices higher. What should you do about it? Watch for mortgage bonds to rebound off their 100-day moving average, but be prepared to lock your rate quickly if bonds fall back below that critical level.  Economic reports that may impact mortgage rates this week: Date Report Period Prior Estimate Actual Tue 11 Jul JOLTS Job Openings May 6.04M 5.95M 6.04M Tue 11 Jul Wholesale Inventory May -0.5% 0.3% 0.4% Tue 11 Jul Wholesale Sales May -0.4% 0.2% -0.5% Thu 13 Jul Initial Jobless Claims Week of July 3 250,000 245,000 247,000 Thu 13 Jul PPI June 0.0% 0.0% 0.1% Fri 14 Jul Core CPI June 0.1% 0.2% Fri 14 Jul Real Weekly Earnings June 0.3% 0.0% Fri 14 Jul Retail Sales June -0.3% 0.1% Fri 14 Jul Industrial Production June 0.0% 0.3% Fri 14 Jul Capacity Utilization June 76.6% 76.7% Fri 14 Jul Mfg. Output June -0.4% 0.2% Fri 14 Jul Business Inventories May -0.2% 0.3% Fri 14 Jul U of Mich. Consumer Sentiment July 94.5 95.0

Tuesday, July 11, 2017

What's going on and why does it matter? Mortgage bond prices opened lower today as the 100-day moving average has been operating as a formidable ceiling of technical resistance. Bond prices failed to rally above that critical level yesterday in spite of heavy purchases by the Federal Reserve.  The Fed is scheduled to purchase up to $1.05 billion of GNMA mortgage bonds today, but they won't be buying any mortgage bonds tomorrow due to Fed Chair Yellen's scheduled testimony before Congress. Although most of this week's economic reports are slated for Thursday and Friday, we can have the JOLTS report and the wholesale sales numbers scheduled for release later this morning. What should you do about it? Lock your rate to be safe, especially while mortgage bonds continue to trade below their 100-day moving average. ..... Economic reports that may impact mortgage rates this week: Date Report Period Prior Estimate Actual Tue 11 Jul JOLTS Job Openings May 6.04M 5.95M Tue 11 Jul Wholesale Inventory May -0.5% 0.3% Tue 11 Jul Wholesale Sales May -0.4% 0.2% Thu 13 Jul Initial Jobless Claims Week of July 3 248,000 245,000 Thu 13 Jul PPI June 0.0% 0.0% Fri 14 Jul Core CPI June 0.1% 0.2% Fri 14 Jul Real Weekly Earnings June 0.3% 0.0% Fri 14 Jul Retail Sales June -0.3% 0.1% Fri 14 Jul Industrial Production June 0.0% 0.3% Fri 14 Jul Capacity Utilization June 76.6% 76.7% Fri 14 Jul Mfg. Output June -0.4% 0.2% Fri 14 Jul Business Inventories May -0.2% 0.3% Fri 14 Jul U of Mich. Consumer Sentiment July 94.5 95.0

Friday, July 7, 2017

What's going on and why does it matter? End-of-Trading-Day Update Bonds finished the week in the red with mortgage bond prices tailing 3 bps and the benchmark yield pushing up against the key technical ceiling of 2.40%. Next week, markets will open with a reaction to G-20 news. Then Friday, we will see a deluge of data including CPI, retail sales, industrial production, capacity utilization, and University of Michigan data. Have a great weekend and be prepared for headlines out of Hamburg to drive rates on Monday morning. ---------------    9am - The non-farm payrolls report came out this morning stronger than market expectations, although the wage component of the report showed slower than expected growth in wages.  The continued strength in the jobs market is likely to keep mortgage bond prices firmly below their critical 100-day moving average, which means that mortgage pricing may continue to deteriorate.  The market will also get a sneak preview into Fed Chair Yellen's semi-annual testimony to Congress next week with the early release today of the Fed's Semiannual Monetary Policy Report. The Fed is scheduled to purchase up to $1.05 billion of GNMA mortgage bonds today. What should you do about it? Lock your rate to be safe, especially while mortgage bonds continue to trade below their 100-day moving average. ] Economic reports that may impact mortgage rates this week: Date Report Period Prior Estimate Actual Mon 3 Jul Construction Spending May -1.4% 0.3%  0.0% Mon 3 Jul ISM Mfg. PMI June 54.9 55.2 57.8 Mon 3 Jul Total Vehicle Sales June 16.66M 16.55M 16.51M Wed 5 Jul Factory Orders May -0.2% -0.5%  -0.8% Wed 5 Jul Fed Minutes June - -  - Thu 6 Jul ADP National Employment June 230,000 185,000 158,000 Thu 6 Jul Initial Jobless Claims Week of June 26 244,000 243,000 248,000 Thu 6 Jul ISM Non-Mfg PMI June 56.9 56.5 57.4  Fri 7 Jul Non-Farm Payrolls June 152,000 179,000 222,000 Fri 7 Jul Average Earnings June 0.1% 0.3% 0.2%