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Friday, September 12, 2014

Daily Market Analysis

Well it's Friday and TGIF.  The benchmark bond has gotten it's proverbial butt kicked since it's near-term high of 103.08 on August 29th.  With a rash of fairly decent economic news plus an announcement by President Draghi (president of the European Central Bank), the bond has sold of steadily over that time and is currently sitting at 101.54 - down 154 basis points in the last 9 days of trading.  This is equivalent to about 3/8ths in rate.  What was 4.25% on August 29th is now 4.625%.  To put this in perspective, rates are still great, there's now two ways about it - 4.625% is still VERY low.  However, the recent (strong) move sends a message that we are now in our upward trend that we have been anticipating since the Fed decided to end the QE3 program.  Only geopolitical unrest and bad economic news have delayed the upward trend in rates but now that both appear to be getting better, the movement upward appears to be on. 

Currently, the benchmark bond is oversold according to the relative strength index so we could see a bounce.  However, more good economic news could provide us with a reset to where bond traders don't see the market as oversold and then we could be in for a much bigger fall in bond prices sending rates into the 5% range on conventional loans.  Because the benchmark bond is oversold I would float with caution but if we get a reset, I would lock quickly. 

Please like, comment, share and subscribe - I would really love to hear your thoughts and questions.  Make it a great day and an even better weekend.

Noble Home Loans
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Jed Wunderli
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Noble Home Loans
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Daily Market Analysis

Continued selling this morning in the bond an mortgage markets. Every day this week the 10 yr note has broken each level of technical support as rates climb. This morning the 10 started at 2.58%, above 2.57% that was the third support taken out with relative ease. The rate markets increasingly believing (at least until next Wednesday) that the FOMC will change the language in the policy statement to indicate the Fed is more likely to increase rates sooner than what had been expected just a couple of weeks ago.
August retail sales were right on the estimates; up 0.6% overall and +0.3% when auto sales are extracted. Consumer spending is increasing; July sales were revised frm unchanged to +0.3%. Sales in August the highest in four months; consumer spending accounts for 70% of the economy. Most recent economic reports have been better than what was expected; jobs improving, gasoline prices declining and slight increases in wages will pressure the FOMC to address the slow but steady improvement and change the language from “ interest rates will stay low for a considerable time” to a more specific timing.
Better economic outlook and no safe haven buying has pushed the bond bulls out on a limb. Traders long treasuries, both in the US and Europe are being forced to cover and in turn driving rates higher for the moment. No market concerns on the increased US involvement in the Mid-east against the Islamic State as long as combat troops are not employed, and it is very unlikely they will be. Bombs away isn’t a major market concern. Ukraine; Russian troops being withdrawn and the cease fire is holding well. Putin may have gotten what he wanted; setting up a border dispute between the separatists and Ukraine government will keep Ukraine frm joining NATO. The EU and US are adding more sanctions on Russia and Putin is rattling the cage but it isn’t having any market impact.
At 9:30 the DJIA opened -34, NASDAQ -9, S&P -5; 10 yr note 2.60%, 30 yr MBS price -23 bps frm yesterday’s close and -39 bps frm 9:30 yesterday.
9:55 the U. of Michigan mid-month consumer sentiment index, expected up to 83.4 frm 82.5, as reported, another better report at 84.6. The 10 at 2.60% on the report and stock indexes slipped a little.
The final data this week; July business inventories, were expected up 0.4%, as reported, up 0.4%. No reaction to the number.
Interest rates increasing, US stock indexes sitting within narrow ranges this week. A complete purging of bullish sentiment in the interest rate markets and likely being overdone for the moment. The bond market is at very oversold levels based on all of the momentum oscillators. We look for a little bounce next week; not a change in the direction but rates have increased too much too quickly and sellers are going to run out of enthusiasm until rates slide back a little. Still no assurance the Fed is going to move any quicker than what was thought a couple of weeks ago (mid 2015). Yellen has not deviated about the quality of the jobs being created and the “slack” in the employment sector. The rate markets may be getting a little ahead of the reality at the moment. That said, go with what we have now, and don’t attempt to front run the bearishness. 27 bp increase in the 10 yr note rate in nine session; too big in too short a time.
PRICES @ 10:00 AM
10 yr note: -13/32 (41 bp) 2.60% +5 bp
5 yr note: -4/32 (12 bp) 1.82% +3 bp
2 Yr note: -1/32 (3 bp) 0.58% +2 bp
30 yr bond: -29/32 (91 bp) 3.33% +5 bp
Libor Rates: 1 mo 0.153%; 3 mo 0.234%; 6 mo 0.330%; 1 yr 0.582%
30 yr FNMA 3.5 Oct: @9:30 101.54 -23 bp (-39 bp frm 9:30 yesterday)
15 yr FNMA 3.0 Oct: @9:30 103.09 -6 bp (-22 bp frm 9:30 yesterday)
30 yr GNMA 3.5 Oct: @9:30 102.99 -31 bp (-42 bp frm 9:30 yesterday)
Dollar/Yen: 107.35 +0.24 yen
Dollar/Euro: $1.2923 -$0.0002
Gold: $1234.60 -$4.40
Crude Oil: $92.75 -$0.08
DJIA: 16,996.47 -52.53
NASDAQ: 4573.68 -18.13
S&P 500: 1989.55 -7.90

About Jed Wunderli
With over 19 years of experience in the mortgage industry as well as being Series 7 Licensed with Fidelity Investments before that, I can structure a client's loan to help them achieve their financial goals. I also offer great rates, communication and fast closings.
About This Report And Disclosure Information
All information furnished has been forwarded to you and is provided by thetbwsgroup only for informational purposes. Forecasting shall be considered as events which may be expected but not guaranteed. Neither the forwarding party and/or company nor thetbwsgroup assume any responsibility to any person who relies on information or forecasting contained in this report and disclaims all liability in respect to decisions or actions, or lack thereof based on any or all of the contents of this report.

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