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Monday, August 29, 2016

Mortgage Bond Market Analysis - Monday, Monday.

It's Monday and trader's are digesting the news from the Fed Symposium in Jackson Hole.  Let's take a look at some data points:  on Friday, the August Consumer Sentiment Index came in at 89.8 vs. expectations of 90.6; that's the lowest it's been in quite a while.  This morning, we had a gaggle of decently strong data.  July Personal Income was up .4% as expected and Personal Spending also met expectations coming in up .3%.  Core PCE was up 1.6% YOY, also as expected.  While none of these data points from today are incredibly hot, they are all reasonably strong and they certainly indicate economic growth.

Friday, after Janet Yellen's speech, traders got a bit nervous and sold off 21 basis points by the end of the day.  While the FNMA benchmark bond closed 9 basis points above its low, the down day signalled some trepidation regarding the upcoming FOMC meeting in September.  Today, however, is another day and traders are playing it differently with some buying going on as the benchmark bond is currently up 25 basis points to 103.76; that's 4 basis points off its high for the day and 7 basis points above the 2nd level of resistance.  The RSI (Relative Strength Indicator) is approaching the overbought threshold as well.

So what does all of this mean?  I would recommend locking if you or a client / friend have a loan in process that is at a lockable point.  I really don't see enough upside potential to warrant the risk of floating.  I hadn't verified if Jobs week is this week or next week when I did my last MBMA, but it is THIS WEEK.  I rarely like floating into the release of jobs data.  We get the ADP Private Payrolls on Wednesday, Initial and Continuing Jobless Claims on Thursday and Non-farm Payrolls along with the Unemployment Rate on Friday.  Last month, all of these numbers were good.  If we get more strong jobs numbers with other good news from the manufacturing and service sectors, I would not be surprised to see the Fed raise rates in September.  In lieu of a video today, I'll leave you with a pretty picture of the current chart for the mortgage bond market:

As you can see from the chart, the FNMA benchmark bond continues to trade in a very narrow range.  Usually the longer the bond trades in a tight range, the bigger the breakout will be.  The bigger likelihood is for a sell-off which means higher rates and this could very well happen with strong date this week and / or next week as traders would likely anticipate a Fed Funds Rate increase at the September FOMC.  If you do decide to float, please keep a close eye on the market by downloading my app from the link in the upper right hand corner.  Make it a great day and a better week.

Friday, August 26, 2016

Mortgage Bond Market Analysis - 08/25/2016 and I need to shave...

Happy Friday.  I actually recorded the video yesterday afternoon and for some reason it took 14 hours to upload.  In any case, the information is still relevant and I plan to record another video after Janet Yellen's speech today.  Check out this short 2 minute video and feel free to share your thoughts in the comment section.  Make it a great day and a better weekend.

Thursday, August 18, 2016

Mortgage Bond Market Analysis - Some History and Some Prognosticating

It's Jobless Claims Thursday and all the data came in about as expected.  Before I get to the data, I want to talk a bit about recent history and share some thoughts on the not-to-distant future.  In 2015 the Fed ended the Quantitative Easing program where they were purchasing $40-45 BILLION in MBS (mortgage-backed securities) every month.  The law of supply and demand had many experts believing, including myself, that rates would go up since it was inconceivable that all of that buying could be replaced by the world's investors.  The buying that the Fed was doing was helping to keep mortgage bond prices propped up which kept rates low - rates / bond yields move inversely to price, i.e. as prices go up, rates go down.  What we didn't know then is that the rest of the world's economies were so bad and the yields offered on those economies' debt was so low that more investors started channeling money into US debt offerings, including our mortgage backed securities.  While the yields aren't very high, they are higher than about all other 1st world debt and mortgage bonds are considered a safe investment.  Because of this, rates have stayed at or near the levels when the Fed was buying MBS.

Throughout 2015, the Fed hawks grew stronger in their belief that the Fed should begin raising the Fed Funds rate.  They were able to convince enough fellow Fed voting members to raise the rate .25% in December.  Stock market investors immediately reacted with a major sell-off that resulted in a loss of an estimated $3 trillion in wealth to ma and pa investors.  Since then we have seen a lot of mixed data with lots of weakness in the manufacturing sector.  There have also been a few months with weak jobs data and several others that have shown very marginal growth.  The trend in 2016 has shown an economy on the mend, albeit a very slow healing process.  The jobs numbers aren't anywhere close to where they need to be, especially if you look at the labor force participation rate which is still hovering around a 39 year low.  Manufacturing has picked up and has shown more consistent positive numbers.  The non-manufacturing sector (aka service sector) which makes up about 70% of our economy has been very strong.  Inflation isn't a threat - yet - and consumer confidence and spending are not always in line with each other with spending still on the weaker side than it should be for a strong recovery.  What this means is that the Fed has not raised rates since their move last December and while many thought that September would be the next time that it happens, the market is saying otherwise.  I think the Fed is afraid of what might happen in the equities markets if they do raise them and the economic recover really isn't in full swing - they are afraid of another December / January meltdown like what we had eight months ago.  Will they raise rates by the end of the year?  That's anybody's guess but it may depend on who's elected president and the market's thoughts on how the next president will do with the economy.  It will certainly depend on actual results in the data.

For now, the price for the FNMA benchmark bond remains in a tight range and is just 40 basis points below the closing price of July 29th.  That's not a lot of movement and there's not much to suggest a big move one way or the other.  Trading right now is more about short-term profits and trying to be on the right side of the economic data.  Jobs week always has the potential for some big moves since lots of important data is released AND if the jobs data shows much stronger than expected, traders could sell off in a big way.  The first week of September is the next jobs week so until then, I don't anticipate a strong influence on the bond market other than the annual Fed retreat to Jackson Hole, WY.  Fed Chair Janet Yellen will give her opening remarks for the summit tomorrow and, as usual, bond traders will be hanging on every word.  There's a good chance she won't provide any definitive information - probably because they don't have any.  For now the RSI is at the mid-point between overbought and oversold so that's a non-factor.  The current bond price is right around the 25 day moving average and at 103.68, it is one basis point below the 2nd level of resistance.  Initial jobless claims came in slightly better than expected while continuing claims came in slightly worse.  The Philly Fed Manufacturing Index came in exactly as expected.  I would lock if you or a client has a loan in a stage where it can be locked.  I don't see enough upside potential to float.  Going forward, my guess is that rates will remain low for probably a good while.  Make it a great day.

Tuesday, August 16, 2016

Mortgage Bond Market Analysis - What's Happening?

Happy Tuesday.  After being away for about a week and a half, I'm back from vacation and trying to get caught up.  So now let me get you caught up on the economic data and how it's impacting the mortgage bond market.  July Industrial Production came in hotter than expected at .7% vs. estimates of .3%.  Capacity Utilization was also a bit stronger than expectations coming in at 75.9% vs. 75.6% expected.  July Housing Starts came in above estimates at 1.211mil vs. estimates of 1.18mil.  The July Headline CPI came in as expected at 0 while the Core CPI MOM was a bit weaker than expected at .1 vs. estimates of .2.  The YOY was also slightly weaker than expected at 2.2% vs. estimates of 2.3%.  The data overall is fairly strong and has caused the FNMA benchmark bond to sell of 29 basis points from its morning high of 103.79.  The RSI is around the 40 mark - 30 is oversold and could be a signal for traders to buy.  The bond is currently 67 basis points off the July 29th high with a downward trend.  I recommend locking if you are in a position to lock.  Tomorrow we get the Fed Minutes - I doubt there will be any surprise there but you never know.  Thursday will bring us the Philly Fed Manufacturing Survey and the Leading Economic Indicators.

As always, I'm happy to help in any way I can so feel free to contact me at or 702-812-1214 or 801-893-1737.  Make it a great day.

Monday, August 8, 2016

Mortgage Bond Market Analysis - Roller Coaster Ride

Happy Monday.  I'm back to civilization after spending the last 4 days at Panguitch Lake fishing and camping with family and friends.  We got rained on VERY hard on Thursday but had lots of fun and caught lots of fish and ate lots of great food.

With my computer in hand and internet service, I can share the news of what's happening with mortgage bonds.  On Friday, we got the last of the jobs data with July NFP BLOWING away expectations of 180K and coming in at 255K.  June's NFP was revised upward to 292K from 287K and Average Hourly Wages also came in hotter than expected as they were up .3% vs. expectations for an increase of .2%.  This was all negative for pricing and the traders acted accordingly by selling off the FNMA benchmark bond as it closed down 38 basis points for the day, erasing the 35 basis point gain from the prior two days.  If you've read my blog for very long, you know that I typically recommend locking before the beginning of the jobs data (or any other data that could move the market) - this is why.

This morning there is no real data to speak of and the bond was higher by as much as 13 basis points at 103.79, getting above the 1st level of resistance by 4 basis points but has sold off a bit and is now only up 5 basis points for the day at 103.71.  Rates remain fantastic and if you missed your chance to lock before Friday's sell-off, your penalty isn't that bad since you can still lock a fabulous rate.  There's no real reason to float, though it's probably not bad if you aren't in a position to lock or just want to see if you can get a little improvement - the RSI is below the overbought threshold and we did just have a decent sell-off on Friday.  That said, if my loan was ready to lock, I'd lock and not worry about what the market does any more.

This will be my only post for this week since I'll be back on a short vacation with my family starting tomorrow and going through Saturday.  In my absence, you can download buyerZapp which will keep you up to date on economic data and how it's impacting interest rates and you'll also have the interest rate trend meter.  You can get the app by clicking on the link in the upper right hand corner of my blog.  Make it a great day and a better week.  I'll be back next Monday with more information.  

Wednesday, August 3, 2016

Mortgage Bond Market Analysis - It's Wednesday and the beginning of the jobs data

Happy Hump Day.  Wednesday is my favorite day of the week.  My daughter is on a mission for a year and a half and she only gets to write emails on her Preparation Days (P-days).  For now, that's Wednesday so I get to have some communication with her and hear how everything is going (she's going to Tokyo, Japan so it's a tough language to learn.

As for mortgage rates, the ADP Private Payrolls Report came out this morning and it was a bit better than expected at 179K new jobs vs. expectations of 170K.  The ISM Non-Manufacturing Index missed expectations by a bit coming in at 55.6 vs. expectations of 56.  This is still a very strong reading.  However, the FNMA benchmark bond finished up 7 basis points after closing down 21 and 17 basis points on Monday and Tuesday respectively.  The GNMA finished the day up 15 basis points.

The RSI is just above the mid-point between oversold and overbought - it's a wee bit closer to overbought.  at 103.77, the benchmark bond is 2 basis points above the 1st level of resistance.  It was 6 points off the high for the day but 15 points above the low.  We still have plenty of jobs and other economic data this week.  I would lock and be done with it just to be safe.  The bond price is still quite high and traders could look to trim their holdings if the data is strong as today's data suggests it will be.

I'll be out of touch the next three days as I will be fishing in a remote area of Utah (Panguitch).  I'll be out of the office next week on a little family vacation to So. Cal. but I will have access to my computer and phone so I may try to get a post up on Monday and / or Tuesday.  Make it a great day.

Monday, August 1, 2016

Mortgage Bond Market Analysis - The Beginning of Jobs Week

Happy Monday and welcome to Jobs Week.  In my Friday post, I said that I doubt we'd see a big move the rest of the day - the FNMA benchmark bond was up 15 basis points at the time and it end the day up 21 basis points so it squeaked another 6 basis points out for the day.  I also said that I didn't think there was a lot of upside so it's a good time to lock; of course, I'm not a fan of floating into the release of jobs data so there is that peril this week if you / your client isn't locked.  This morning, the bond was down as much as 21 basis points.  We have seen a bit of volatility as it improved through the early part of the morning and was actually up 4 basis points at one point but is now currently down 11 on the day at 103.96 which is 2 basis points below the 2nd level of resistance.  The RSI is just below the overbought threshold so that's a bit of improvement but it's expected with the sell-off.

The July ISM Manufacturing Index came in at 52.6, just below estimates of 53 but still a strong number as any number over 50 is expansionary.  This is a good follow-up from Friday's Chicago PMI data which was quite strong at 55.8 and much better than the expectations of 54.  On the downside (mixed data - go figure), June Construction Spending was - .6% vs. estimates of +.5%.  This is a big miss and helping to support current pricing levels.  Tomorrow we get Personal Income, PCE (Personal Consumption Expenditures) and Personal Spending and then Wednesday / Hump Day get's us started on the jobs data with the ADP Private Payrolls.  We also get the ISM Non-manufacturing Index as well.  With little reason for lots of bond buying, I think the upside is low and thus I would recommend locking.  If jobs numbers are much weaker than expected then we could see some improvement which you might be able to take advantage of with a float down.  That said, with the strong manufacturing numbers that we have had recently, I wouldn't expect the jobs numbers to be weak.  That's all for today; I'll have another report on Wednesday and then I'll be out of town for 10 days - I'll try to get some info out but in my absence, there's buyerZapp that you can download via the link in the upper right-hand corner of my blog.  Make it a great day and a better week.