Mortgage Bond Market Analysis - Monday Edition

Happy Monday.  I hope you had a great weekend.  It's a fairly light week for data with nothing very important until we get to Thursday and Friday.  Thursday brings Jobless Claims and Import Prices and Friday we get Retail Sales, Business Inventories, Michigan Consumer Sentiment Index and, most importantly, the Producer Price Index.  The PPI along with the CPI we get on the 15th will likely weigh heavily on the Fed's decision on the 16th along with the (strong) jobs numbers from last week.

In my post on Friday I said that the charts were looking like the bond would likely trend higher throughout the day, which it did, closing up 25 basis points and getting back some of the losses from the previous days.  We get Labor Market Conditions Index and Consumer Credit Change today but this data isn't likely to have much influence on bond prices.  We have some headwind with the first level of resistance at 103.48 roughly the same as the 25 day moving average (the FNMA benchmark bond just broke through this level and is at 103.52 - we'll see if it can close above this level).  The 2nd level of resistance is even stronger at 103.72 with the 100 day moving average also being right at that level.

While the likelihood of a Fed rate hike isn't as strong as it was before Janet Yellen's comments last week, I think trader's are still very skeptical about the situation.  We will have a better idea by the end of the week and again after the CPI is released next Tuesday but waiting to lock until then is dangerous.  We've had a nice little recovery on Friday and this morning and I would take advantage of it and lock if I haven't locked yet.  Don't hesitate to contact me if I can help in anyway - 702-812-1214 or 801-853-8720.  Make it a great day.

Mortgage Bond Market Analysis - Freaky Friday Edition: The Last Day of Jobs Data

Well it's Friday and we have a bit of an anomaly happening unless you take one thing into consideration (maybe two).  Today is the 3rd and last day of the jobs data and it was all strong - there was nothing mixed about it.  Non-farm Payrolls came in at 211K vs. estimates of 196K.  October's reading was revised upward to 298K from 271K.  The Unemployment Rate stayed even at 5% as expected and the Labor Force Participation Rate went from 62.4% to 62.5%.  Average Hourly Wages came in as expected with a .2% increase and the YOY figure is at 2.3%.  This is all good news for the economy and negative for pricing yet the FNMA benchmark bond is up 10 basis points after being obliterated yesterday with a 56 basis point sell-off.  So what gives?

On the fundamental side of things, the bond market was getting close to oversold so maybe the traders thought that could make a quick trade for some profits.  More probable are some comments Janet Yellen made yesterday.  The first comment is just a "good to know" comment:  it takes about 100,000 jobs to absorb the new workers entering the workforce every month; anything over that helps to employ the unemployed, discouraged or those who had dropped out of the labor force.  The comment that may have given bond traders the impetus to do a little buying this morning in the face of this strong data was that the United States may be "close to the point at which we should be raising."  This comment doesn't feel like one that is definitive that they will start raising the Fed Funds rate; it is far more nebulous.  There are many experts who have been acting / talking as if an increase to the Fed Funds rate is a foregone conclusion.  Maybe it's not; apparently the bond traders have some renewed hope.

I would say that if you didn't lock on Tuesday when I first recommended it, or haven't locked since then, I would float at this point.  The FNMA benchmark bond is currently up 14 basis points contrary to this strong data, and it has the initial look that it may trend up during the day.  I would keep a watchful eye on the market so that you could lock quickly if needed.  If the bond does trend up during the day, I'd probably float through the weekend and see what Monday brings.  As always, contact me if I can help with anything mortgage related, including an intra-day update on the mortgage bond market to see if you should lock or float - 702-812-1214 or 801-853-8720.  Make it a great day and a better weekend.

Mortgage Bond Market Analysis - Jobless Claims Thursday

It's Thursday and we are into day two of the three day jobs data period.  We have mixed data - you don't expect anything else, do you?  Here's the scoop as far as the data is concerned:  Initial Jobless Claims came in at 269K, 1K higher than the 268K expected.  Continuing Jobless Claims came in at 2,161K, 26K lower than expected - this is negative for pricing (i.e. bad for rates).  The ISM Non-manufacturing index came in at 55.9, 2.4 points lower than the expected 58.3 but still a strong showing as it is well above the 50 level which shows growth.  This is a more important index than the manufacturing side since the service sector / consumers make up 2/3 or our economy.  Factory orders were a bit hotter than expected at 1.5 vs. estimates of 1.4.

How is the bond market reacting to the data?  I'll say it again, on Tuesday I recommended that you / your clients lock ahead of the jobs data.  The FNMA benchmark bond just had a nice little run-up.  Taking advantage of those gains were ideal.  Yesterday the benchmark bond was down 28 basis points, erasing all but 2 basis points of Tuesday's gains.  Today it's down 32 basis points taking us back to November 23 pricing and erasing all of the gains from the run-up.  I reiterate the lock recommendation as more good data tomorrow will help continue the sell off.  If you lock now and rates improve dramatically (not likely considering how close we are to the 16th and what many consider a lock for the first Fed Funds Rate increase), you could float down - assuming your lender offers this option.  The RSI is now a bit closer to oversold than overbought so there is that.  Our first support level is just 11 basis points below the current level of 103.33.  All of the moving averages are above the current pricing level so the first support level is not real strong and a sell-off could snowball into something big.  The downside risk is much bigger than the potential upside reward.

Contact me if I can help in anyway - 801-853-8720 or 702-812-1214.  Make it a great day.

Mortgage Bond Market Analysis - Hump Day Edition

It's already Hump Day which means...we get the first bit of jobs data from jobs week.  This morning the ADP Private Payrolls Report came out and at 217K it blew away estimates of 183K.  While this doesn't always translate to good numbers in the Non-farm Payrolls or the Unemployment rate but it did last month and traders are selling on the news.  Another drag on the FNMA benchmark bond this morning is the Unit Labor Costs which shot up to 1.8% from .9%; this is, of course, inflationary and would provide reason for the Fed to raise the Funds rate.

Yesterday I recommended locking ahead of the jobs data today and with an up day of 30 basis points preceded by a 19 basis point up day, it would have been ideal to lock especially when today the bond is selling off and is currently down 24 basis points nearly wiping out all of yesterday's gains.  If you didn't follow my advice yesterday to lock, I would reiterate my stance to lock ahead of the upcoming data because I believe there is a greater likelihood of more deterioration than there is for upside gain.
For those who use me to help them with their mortgages, they can attest that the information I provided them goes far beyond advice about when to lock.  While getting a great rate means locking at the right time, not just using a lender who claims they have the best rates, there is so much more that goes in to a client's financial success and that means educating them regarding financial principals and then helping them understand the options about how the various ways of structuring their loan will impact their financial future.  I do this for my clients and would love to help you with your loan or your clients' / friends' loans.  Contact me with any mortgage-related questions at 702-812-1214 or 801-853-8720.  Make it a great day.

Mortgage Bond Market Analysis - December 1st Edition

Happy December.  11 Days until my wife's birthday (she'll be 29), 13 days until my daughter's (interestingly enough, she'll be 19 - just 10 years behind my wife), and 24 days until Christmas.  We are also 15 days until the Fed reveals their interest rate decision which many are prognosticating a raise / tightening.  If you read my blog yesterday, or much in the past, you know the first week of the month is Jobs week and the data we get this week will be very telling.  While the vote was 9-1 against tightening the last two Fed meetings, past actions do not guarantee future results.  The Chicago PMI was weak yesterday, below 50.  Today we get the ISM Manufacturing Index which had expectations of 50.3 and it came in at 48.6; this is the 2nd manufacturing number in as many days to come in below 50 which shows retraction.  This is a good argument for the Doves (the Fed voters who are cautious about raising rates).  Conversely, Construction Spending came in at 1.0 vs. estimates of .5.  Of the two numbers, I think the more important one for the Fed is the manufacturing number.

Yesterday the FNMA benchmark bond closed up 19 basis points and after this morning's weak manufacturing data, it is up another 14 basis points.  With two decent gains like this, I would take advantage of it and lock ahead of the employment numbers we will see over the next three days.  In addition to all of the employment numbers, we also get the ISM Non-manufacturing data on Thursday along with the ECB Policy Statement and some comments from Janet Yellen.  One important reminder regarding the employment numbers is that these all include seasonal employment for the holidays and there's no way to know how many of these workers will be able to parlay their temporary employment into permanent jobs.  Contact me if I can help with anything (801-853-8720 or 702-812-1214) and make it a great day.