The Mortgage Update

points
from Yesterday
Treasuries were up again yesterday as investors must
have realized that every asset class cannot go down at
the same time. MBS appeared to be settling down
yesterday, finding a fairly stable level all day long.
However, today is quarter end so that may add to the
volatility to the market. Chicago PMI and Consumer
Sentiment will cap off this week’s economic news at
9:55 today.

Have a great weekend and cya Monday

The Mortgage Update

Treasuries rose yesterday when the President of the
Federal Reserve Bank claimed the central bank isn’t
close to decreasing its balance sheet as officials have
speculated. Personal spending rose .3 percent in May,
the biggest increase in three months, while
unemployment benefits fell by 9,000. Economists
predict consumer-price inflation increased 1.1 percent
in May and personal consumption price index is flat to
April. Both reports are due out this morning. If forecasts
are correct, both of these numbers could mean good
news for the bond market today.

The Mortgage Update

Home prices rose faster from March to April than they ever have in the history of the index. The composite index of 20 metropolitan areas gained 2.6 percent—which included Detroit. Treasuries gained overnight as they appear to be consolidating after the recent sell off, but sentiment remains fragile. The U.S. will sell $35 billion in five year notes today to start this week’s auction cycle and GDP is due out at 8:30.

The Mortgage Update

The only thing we know for certain is that investors still don’t know how to react to the Fed’s press conference last week. The market opened down significantly from where we priced, but we were able to make up most of the loss over the course of the day. But something strange is happening this morning…there is a rally in the bond market. Investors sought safer assets amid speculation a credit squeeze in China will slow growth in the world’s second-largest economy.

The Mortgage Update

Bonds slumped globally over the weekend. Benchmark notes dropped for a 6th straight day as Ben Bernanke claimed QE may begin to tapper bond purchases this year and end it in mid-2014. Volatility remains the name of the game this week. The Bond Market still lacks confidence and any piece of news or data has the potential to move the market. The first big piece of economic news is Tuesday with Durable Goods Orders and Consumer Confidence. It was another wild night with the market significantly from where we priced on Friday. It’s going to be a wild ride today, buckle up…

The Mortgage Update

All should be quiet on the home front with no economic data scheduled to be released. It will be an opportunity to reevaluate what has happened over this past week. Most economists believe the market has over reacted to the Fed’s announcement. However, this could add volatility to the market over the next few weeks as investors return to the MBS market. We could enjoy a stable day today, so let’s take advantage of it.

The Mortgage Update

Annihilated. The Fed has spoken and it wasn’t pretty. Bonds and Treasuries tumbled around the world following Big Ben’s press conference. The MBS market was sent into a tailspin losing over a point causing multiple re-prices late into the evening. The 30-year MBS best execution rate has risen to 4.25%, a rate not seen since 2011. We could rebound today or tumble more. Policy makers expect the jobless rate has fallen to 7.2 percent, down .1 percent from March. Hold on to your hats this could get exciting.

The Mortgage Update

Treasuries are little changed before Bernanke & Co speak at 2 PM after the central bank ends a two-day meeting. The Fed’s scripts is already out the question is--will they stick to it. Investors are waiting for any indication that the central bank will slow the pace of bond purchases. Especially, after reports showed inflation stayed below the Fed’s target and housing starts trailed the economist forecasts. The market could move significantly in either direction we just don’t know which one yet…

The Mortgage Update

MBS lost ground late yesterday as the market reacted to a Financial Times article claiming the Fed may end asset purchases sooner than later. Tapering is the word of the day as the Federal Reserve starts their two-day policy meeting today. Investors are looking for signals that the central bank will begin to slow bond purchases. Housing Starts will be reported today and a possible predictor for the Fed’s announcement tomorrow. Anything could happen today we just need to wait and listen…tapering.

The Mortgage Update

Late Friday afternoon bond markets began taking chips
off the table ahead of this week’s FOMC events. This is
the week we have all been waiting for, the central bank
starts a two day meeting tomorrow. 10-year yields fell
from a 14-month high last week amid skepticism policy
makers are moving toward reducing bond buying. The
recent rise in yields suggests the market is nervous
that the Fed will soon reduce stimulus. Hopefully,
Bernanke will calm the market down and reaffirm their
monetary policy. Maybe that is just wishful thinking on a
Monday morning.

The Mortgage Update

Treasuries gained for a second day as some investors got a hold of themselves and realized that headlines proclaiming the Fed will slow its bond buying program sooner than later are speculative. Its weekend, which means the most significant economic data is behind us and the auction cycle has ended for the week. Hopefully, the majority of investors will be focused on the FOMC minutes next week and offer us a quiet day in the MBS market. Data today will be centered on the 9:55 Consumer Sentiment announcement.

The market rallied yesterday as news from Asia caused investors to seek safer assets. The bond market made up for losses incurred early this week, moving back to Thursday’s levels. Today, no major economic news is scheduled to be released; however, an announcement from the ECB might move the market today. Tomorrow jobless claims are schedule to be released and the speculation continues about the FOMC announcement next week.

All was quiet in the Bond Market yesterday with pricing finally stabilizing in the early morning. Treasuries fell for a third day ahead of the three-year auction today. Speculation the Federal Reserve will consider reducing bond purchases still drives market volatility this week. Today reports are forecasted to show retail sales rose .4 percent in April, which would be the biggest increase since February. How, or if this will significantly, move the MBS market is anyone’s guess.

Something strange happened yesterday, the bond market rallied. However, gains made yesterday do not change the fact that the MBS market has moved into new territory. Today has the potential to be the most volatile day this week. This morning, a government report that economist forecast to show U.S. job growth slowed last month will be the market mover. U.S. employers added 163,000 jobs in May down from 165,000 in April. If employment numbers continue to be strong, the Fed may have more confidence in ending its bond purchases sooner than later.

Treasuries advanced early this morning as stocks declined around the globe; increasing demand for safer assets. A fairly big day for economic data, separate figures are forecasted to show that factory orders rose in April and service industries expanded in May. The Fed will release the Beige Book today as well, which reports on the economy. This report rarely makes a market impact; however with recent market volatility every piece of news has the potential to significantly move the market.

Mortgage rates were moderately higher today, taking most lenders into slightly higher territory than yesterday or last Tuesday (the two worst days recently).  Last Tuesday was the game-changer for rates, and every day since then has been in 14-month high territory--today being the worst. 

At this point, rates for the next few days will be heavily dependent on tomorrow morning's economic data, where the ADP Employment report has a tendency to cause volatile movement if it's far outside the range of expectations, even though Friday remains the most important day of the week (and one of the most important this year).  If both tomorrow and Friday are favorable for rates, we will likely recover a lot of lost ground, but if job creation is clearly stronger than expected, today's 14-month highs may look attractive by comparison.

WEEK OF JUNE 3 2013

This Week's Economic Releases

Mon

• PMI Manufacturing
• ISM Mfg Index
• Construction Spending

Tues

• International Trade

Wed

• ADP Employment Report
• Productivity and Costs
• Factory Orders
• ISM Non-Mfg Index
• Beige Book

Thur

• Jobless Claims

Fri

• Employment Situation