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Wednesday, March 23, 2016

Mortgage Bond Market Analysis - Hump Day

It's Hump day and one day after the terrorist attacks in Brussels.  A geo-political event like that often spurs a flight to quality / safety which means investors move out of stocks and commodities and in to bonds.  It was hard to see anything like that yesterday with the FNMA benchmark bond finishing down 13 basis points though perhaps it would have closed down more if it weren't for a flight to safety.  The only data point we received yesterday was the Richmond Fed Manufacturing Index which obliterated expectations with a reading of 22 vs. estimates of -1.  This morning the data was a little less surprising with New Home Sales coming in at 512K vs. estimates of 510K.

The more influential dynamic is what the talking heads from the Fed are saying.  Janet Yellen expressed some dovishness in her remarks last week with regard to the economy and rate hikes.  There was one voting member who dissented last week and wanted to raise rates .25%.  Esther George, Kansas City Fed president is quite hawkish and thought that they should have raised the rates last week.  In comments this week, three non-voting members of the FOMC have voiced opinions similar to Ms. George's.  Patrick Harker, new president of the Philadelphia Fed, John Williams of San Fransisco and Dennis Lockhart of Atlanta are all leaning toward a rate hike in April.  The FOMC has 17 members, 10 of which vote.  Nearly one quarter of the FOMC believes that rates should be increased but only one of the 10 voting members last week thought rates should be increased.  We have about five weeks until the next FOMC meeting and a lot could happen between now and then and while they will be looking closely at our economic data, there is much concern about global economic weakness and how it might impact our economy.

One thing to keep an eye on is that there is an increasing belief in England that they should exit the European Union.  The Queen wants out as do many of the leaders.  England will hold an official vote regarding this issue on June 23rd.  Should they decide to annex themselves from the union, this will certainly weaken the EU and nobody knows how that will impact Europe's economy or the global economy.  The benchmark bond has recovered all of yesterday's losses and then some as it is currently up 20 basis points.  We are seeing a bit of a flight to quality today as oil is selling off and money is moving into bonds.  Tomorrow we get Jobless Claims and Durable Goods Orders.  The bond market will close early tomorrow and will be closed on Friday for Good Friday.  I would float with caution - if you haven't installed my app (buyerZapp) on your phone you can click on the link in the top right corner - and I will send an alert if the bond moves against us by an amount that might cause a reprice.  Be ready to act quickly if you get that alert.  We could see some lingering buying in the bonds this afternoon and tomorrow, especially if tomorrow's data is weak.  That said, locking now isn't a bad thing since I wouldn't anticipate too much of a gain from this point; I think it's unlikely we see much benefit if any from floating.

As always, contact me if I can help with anything - 702-812-1214, 801-853-8720 or  Make it a great day.

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