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Monday, June 27, 2016

Mortgage Bond Market Analysis - FOLLOW THROUGH on Brexit

Happy Monday morning.  And if you or your clients are floating, you should be HAPPY.  On Thursday, England voted to take their country back.  They are no longer part of the European Union and part or the reason for that vote was to give them more freedom to enact trade agreements and deregulate the industries that bring in revenues for Great Britain.  I have coached basketball for a long time and one area of expertise that I have is coaching shooting.  There are a lot of things that go into making a good shooter  but one of the most important things other than proper footwork and balance is follow-through.  This is a key concept in many sports, a quarterback has to have good follow-through to make a good throw.  Tennis players and pitchers need good follow-throughs on their swing and pitch, respectively.  Shooters need good follow-through in basketball to be consistent with their shot.  Well, on Friday the FNMA benchmark bond closed up 60 basis points, 29 basis points off its high and 26 basis points below the 2nd level of resistance at 103.24.  This morning we are getting some follow-through (I love it when it comes to mortgage bond buying) as the benchmark bond is up 38 basis points at 103. 62.  Since the close of business on Thursday, this is an improvement to the interest rate of about .25%.  This is awesome and while we may still see more improvement, there would be absolutely nothing wrong with taking your chips off the table, as they say in poker, and locking in your rate.

As I have said many times before, some of the biggest drivers of interest rates are geo-political events.  While economic data, especially key points like the CPI and jobs numbers along with a few others can be big influencing factors for interest rates, big events like England leaving the EU cause enough consternation to get investors to move money from more speculative investments like stocks and commodities to safe-haven investments like bonds.  To make matters even better for mortgage borrowers who are looking to lock, the fact that yields are extremely low (and even negative in a few parts of the world) around the rest of the globe, our bonds are the most attractive of all bonds and the more money flows into our bonds, the lower the rates go.  

We have a fair amount of semi-important economic data this week ahead of jobs week next week (and my birthday on Tuesday) but I think the focus is going to be on Europe.  Another thing to consider from a technical standpoint is that even with the two huge up days of Friday and today, the Relative Strength Index has yet to cross the overbought threshold.  It's knocking on the door but it isn't there yet.  If you decide to continue to float, I would pay special attention to my app - buyerZapp , you can download it by clicking on the link in the upper right hand corner - so that if rates begin to move against you, you can act quickly to lock.  I'm always available and happy to help in any way I can so feel free to contact me.  If you have mortgage insurance on your loan, you may want to see if refinancing makes sense with how low rates are right now.  Contact me at 702-812-1214 or 801-893-1737.  Make it a great day and a better week.

Friday, June 10, 2016

Mortgage Bond Market Analysis - The End of a Quiet Week

It's Friday and the end of a quiet week in the mortgage bond market.  The FNMA benchmark bond is currently down 4 basis points which means it's down 2 basis points for the week.  It was down 14 on Monday, up 6 on Tuesday and 14 on Wednesday and then down 4 yesterday.  In other words, the benchmark bond is trading in a very tight range and hasn't really been able to break out above the 102.79 resistance level.  I think we will continue to remain in this tight range until after the FOMC meeting next week where most experts believe that the Fed will NOT raise rates.  Count me in the camp of those who believe the Fed will postpone a rate increase at least until the end of July and maybe even until September BUT I would hate to be on the wrong side of that bet if you are floating and rates are so great anyway like they are right now.

Yesterday, Jobless Claims came in slightly better than expected and Wholesale Inventories came in much stronger than expected at .6% vs. estimates of .1%.  This morning, the Consumer Sentiment Index came in at 94.3 vs. estimates of 94.  None of this gives bond traders any reason to make a big move (buy or sell) and it certainly doesn't give the Fed reason to raise the Fed Funds rate, especially considering the other data we've seen since the last FOMC meeting.  If you are going to float, make sure you have my app - buyerZapp - which you can download by clicking on the link in the upper right-hand corner of my blog.  The app will help you react quickly to a big sell-off in mortgage bonds that might allow you to lock before a reprice for the worst.

Make it a great day and a better weekend.  If you need me for anything mortgage related - a guideline question, pre-approval or anything else - please feel free to call me; I'm here to help in any way I can.

Wednesday, June 8, 2016

Mortgage Bond Market Analysis - Looking for direction

It's Hump day and a week after jobs week, traders have been tentative to make any big moves.  You may recall (if you read my blog post on Friday) that the Non-farm Payroll numbers were abysmal.  This served to push bond prices higher by 43 basis points.  I said that you may want to float to see if we can get some follow through this week but I also cautioned against greed.  There was a bit of profit taking on Monday with the FNMA benchmark bond finishing down 14 basis points.  Yesterday, it closed up 6 basis points and so far today it is up 14 basis points with a current price of 102.97.  This is testing the highs of the last few months.

The RSI is overbought by quite a bit which means that aside from any big weak economic news or a geopolitical catastrophe, traders may take some profits off the table with no real impetus to push prices higher.  The JOLTS report came out today and was quite strong.  All of the recent jobs reports other than the NFP have been respectable to good.  It's my thought that traders aren't really sure about the job market or the economy right now.  It is quite nebulous and trying to guess what the Fed is going to do next week at the FOMC meeting with regard to the Fed Funds rate is next to impossible.  Tomorrow we have Jobless Claims and Wholesale Inventories and Friday we get the Michigan Consumer Sentiment Index.  I don't anticipate any significant moves in either direction so if there isn't much chance for a big reward if you float AND considering the fact that rates are fantastic right now, I would recommend locking.  Next Wednesday is Fed decision day.  If they decide not to raise interest rates then, the chances increase for a rate hike at the next meeting.  For now, it's a guessing game that I wouldn't want to play with my money.

Make it a great day and contact me if I can help in any way.

Friday, June 3, 2016

Mortgage Bond Market Analysis - Jobs Data Friday

Happy Friday.  There's lots of data so I'll get right to it.  Yesterday, Jobless Claims and ADP Private Payrolls both came in slightly better than expected with Jobless claims coming in slightly lower and ADP Private Payrolls coming in slightly higher.  If you read my blog on a regular basis, especially the coverage of Jobs Week for the first five months of the year, you know that there has been a relatively strong correlation between the ADP Private Payrolls and Non-farm Payrolls.  This time we have done an about face.  May Non-farm payrolls were a HUGE miss coming in at 38K (extremely weak) vs. expectations of 164K.  Here's the really funny thing - the unemployment rate dropped from 4.9% to 4.7%.  If you are thinking clearly your question should be "How is it possible that so few jobs were created yet the unemployment rate was reduced by .2%.  The devil is in the details and the details show that the Labor Force Participation rate dropped from 62.8% to 62.6%.  The population that makes up the Labor Force is the biggest of all data populations for the various jobs data so a .2% drop has a dramatic impact.  The true unemployment rate isn't anywhere close to 4.7%.  In reality, because of an ultra-low labor force participation rate, the unemployment rate is somewhere in the double digits.

May ISM Services came in at 52.9, expansionary but far below the expected 55.5.  Earlier in the week we had a much weaker than expected consumer confidence number as well.  This kind of data will likely give pause to Fed members who are on the fence about raising rates.  The hawks will argue that the key data that justifies a rate increase is there like PCE and CPI while the doves will argue that weak jobs data will lead to less spending and the PCE and CPI will both likely decline over the next few months making a June rate increase unnecessary.  I'm just hypothesizing but this data certainly helps the mortgage interest rate picture today but it muddies the water of a Fed rate increase.

If you have a mortgage that isn't locked, take advantage of today's bad economic news.  You may be o.k. to float to see if the mortgage bond buying has some legs.  On the technical front, the FNMA benchmark bond is at 102.81, 2 basis points above the 2nd level of resistance.  Closing above this resistance level will mean a higher likelihood of a little rally.  The RSI is in overbought territory so there is the possibility that lacking any important data, bond traders might decide it's time to take some money off the table which means they sell, bond prices go down and interest rates move higher.  If you've read my blog for any length of time, you know I'm on the conservative side when it comes to locking and that I don't like to be greedy.  Contact me if I can help with anything - 702-812-1214 or 801-893-1737 or  Make it a great day and a better weekend.

Wednesday, June 1, 2016

Mortgage Bond Market Analysis - Jobs Week

It's Jobs Week.  There is a lot of data to go over to get us back up to speed after me being off-line last week.  Manufacturing data has been (much) weaker than expected recently.  Yesterday the May Chicago PMI came in below expectations at 49.3 vs. estimates of 50.9.  To the contrary, this morning's May ISM Manufacturing report came in at 51.3 vs. expectations of 50.4.  The Prices Paid component jumped to 63.5 vs. estimates of 59.6; both numbers are hot, but the actual number is huge.  This is inflationary and it's the kind of thing that will feed fuel to the fire for those Fed members who want to raise rates at the June meeting.

April Construction Spending came in at -1.8% vs. estimates of +.6%.  A rather large discrepancy.  The May Consumer Confidence came in at 92.6 vs. estimates of 96 - another big miss.  There is a lot of data that still shows the economy is on shaky ground but there is also data that shows we are recovering, even if it is slower than most of us would like.  April Personal Income came in as expected at +.4% but Personal Spending came in at +1% vs. expectations of +.7% - this is a big surprise to the upside and gives more fuel to the "raise the Fed Funds rate" fire.  In spite of the surprise in Personal Spending, the Core PCE remained at 1.6% YOY which provides the "let's keep rates where they are" camp some water to put out the fire.

On May 27th, Janet Yellen said that the economy has picked up it's pace from the slow growth period of the 4th and 1st quarters.  She said that she expects the labor market to continue to tighten and the economy to grow at the rate it has been so far in the 2nd quarter.  She indicated that if this happens, the Fed will be ready to act in the coming months.  So what does this mean (the bond traders hate nebulous messages like this)?  Are they going to raise rates at the June FOMC meeting or not?  Time reveals all answers.

Due to the Memorial Day holiday, the ADP Private Payroll numbers will be released tomorrow with the Jobless Claims numbers instead of the normal Wednesday release.  Expectations are for 180K which is 21K better than last month's disappointing 159K reading.  Non-farm Payrolls, the Unemployment Rate, Factory Orders, ISM Non-manufacturing, and Average Hourly Earnings will be released on Friday.  We will also hear from Mario Draghi of the ECB tomorrow morning - I can't imagine too much good news from his comments as Europe continues to struggle but we could get a surprise.

The FNMA benchmark bond is up 1 basis point at 102.34.  It hit the two resistance levels of 102.45 and 102.53 this morning and got pushed back down.  The RSI is approaching overbought.  The first resistance level of 102.45 is also about what the 25 day moving average is so that makes it stronger.  I'm always cautious when it comes to Jobs week.  If you or a client has a loan that isn't locked, you may want to consider locking ahead of the data.  Make it a great day.