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Thursday, January 29, 2015

Mortgage Bond Market Analysis - Holy Jobless Claims, Batman!!

We received quite the surprise on the jobless claims front this morning.  After two consecutive weeks with readings up over 300K and expectations for 301K jobless claims this week, those who are hoping for economic growth (as opposed to lower interest rates) got a pleasant surprise when claims came in much lower than expected at 265K.  Initially it knocked bonds off their perch but not as much as one might have thought; the initial drop was only about 20 basis points.  This positive surprise was tempered by the disappointing pending home sales numbers that were expected to come in at +.5% and missed the target in a big way with the actual number at -3.7%.

As of this writing (different from the chart you'll see), the FNMA benchmark bond is right in the middle of the day's trading range at 102.98 - 10 basis points off both the high and the low and 2 basis points below the 1st level of resistance.  From a technical perspective, the RSI is a bit closer to oversold than overbought which is good for those hoping for lower rates.  Here's a snapshot of the chart:

A little different perspective:  I haven't written about this in a while so with good jobless claims numbers this morning and the economy seemingly on a slow uptrend, I feel like now is a good time to give a little perspective about interest rates in general.  For those who are looking to refinance their current mortgage or are thinking about buying a home, the lower the interest rates the better.  The problem with that is that typically we see low interest rates when the economy is bad.  When the economy is healthy and the unemployment rate is generally where it should be along with the GDP, CPI and PPI, interest rates are typically in the 6-7ish percent range.  For those that have salaried jobs, it may not be as important how the economy is doing and lower rates - at least while they are buying or refinancing - is the goal.  For those who are in the real estate and mortgage industries, we should want the economy humming along so that more people could have jobs that allow them to qualify to buy homes.

As the impact on our economy, and more importantly the impact on investors' decisions, becomes more influenced by the global economy and world events, it is possible to have a decent local (national) economy and have relatively low interest rates.  However, our exports aren't as strong as they could be if the rest of the world's economy is in the crapper.  As far as I'm concerned, I'm hoping for growth in jobs which means more people can buy more stuff which means the GDP improves along with all of the other related data - especially things like pending home sales - but it also means that rates will likely rise as the investors will switch to equity investments from bonds to try to keep pace with inflation.

What's for dinner tomorrow?  As an appetizer we will get the GDP with Chicago PMI for the main course and for desert there is the Reuter's University of Michigan Consumer Sentiment Index - which caused the huge drop in bond prices and a big bump to rates two weeks ago.  You may want to lock ahead of this data release - just to be safe.  Please call me if I can help with a refinance or a purchase mortgage:  702-812-1214.  Make it a great day.

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