Mortgage Bond Market Analysis - Retail Sales, PPI, Business Inventories and ...

It's Hump day and there is a lot going on in the economic data / bond market world.  Retail sales came in weaker than expected which could be an indicator that credit usage (or lack there of) is a better indicator of consumption than improving employment numbers and increasing wages - if this is true, the savings rate should be increasing - it has increased since January from 5.2% to 5.4% but last October it was 5.6% and in November and December it was 5.5%.  From a historical perspective, from 2006-2008, the savings rate in the U.S. was around 3% (always less than 4%) and it spiked to just above 10% in late 2012 and currently looks to be trending up - hopefully people are saving to buy homes since now is truly a fantastic time to buy.

Back to the data - Retail Sales came in at -.3 vs. expectations of .1; ex-Auto, the number came in at .2 vs. expectations of .4.  The Producer Price Index also came in below expectations at 1.0 vs. 1.1 - CPI is much more important to the Fed and we get that tomorrow.  Finally, Business Inventories matched their weak expectations of -.1.  With all of this weak / weaker than expected data, you would think that the FNMA benchmark bond would be moving higher, right?  Well you (and I) would be wrong.  Chinese exports were stronger than expected and that is getting the most weight right now since Yellen has said that the Fed will increase rates when they see the global economy strengthening and China is a huge part of that.  The other thing that will keep traders cautious is the Fed Beige Book which comes out this afternoon - this will likely give traders more direction.

10-Year Treasury Auction:  This might be the saving grace - with bonds in Europe offering very low yields, negative in some cases, by contrast, US treasuries look quite attractive in the upper 1% to upper 2% range.  If the appetite for the 10-year treasury that is being auctioned this afternoon is strong, this will be a good thing for mortgage bonds as well and we could see rates improve.

I locked yesterday:  I didn't actually lock but I do have a client who decided to lock and we got her locked at 3.375% on a 30 year fixed rate FHA.  She was ecstatic.  Rates might move lower today - the RSI is closer to oversold than overbought (that moved quickly on a couple of light down days) so that could help as well - probably not, though.  I think traders are trading more on economic data than they are on technicals.  Tomorrow we have a 30 year bond auction, the CPI and Jobless Claims.  Friday brings us the Consumer Sentiment Index, Industrial Production, NY Manufacturing Index and Capacity Utilization - none of these will likely have a huge impact.  China releases their GDP number and THAT could definitely have some influence - a good number will be bad for interest rates.

Currently the benchmark bond is down 3 basis points which is 12 basis points off its morning low.  I would float with caution only because we might get some good results based on the auction.  Have your phone close to you since I will send out an alert to Lock via my app (buyerZapp) if the auction doesn't go well and bonds sell off.  Make it a great Hump Day.