Mortgage Bond Market Analysis - Hump Day and Yellen and a look at the chart

It's Hump Day and we get to hear from Fed Chief, Janet Yellen.  Since December 30th's open, the FNMA benchmark bond (which was the 3.5 back then but has switched to the 3.0 since, indicative of falling rates) has gone up 308 basis points (today's monthly rollover aside).  Between oil prices that are well below where the market would like to see them (the glut is the major cause while economic weakness isn't helping), key economic data that has been very weak for far too long and global economic weakness, stocks have been crushed (my kids' college funds have taken a real beating) but at least bond prices, and by default, mortgage rates have benefited.  Let's take a look at the chart.

One thing that stands out is the huge and almost straight run-up with just a few minor setbacks.  From a technical standpoint, there is a lot of resistance to move higher with the RSI still above the overbought line and the 1st resistance level just a few basis points above the current price and the 2nd resistance level just 25 basis points above that.  Certainly some bond traders are getting anxious to pull some profits off the table as well.  That said, Yellen said that global economic weakness pose risks (this comment is good for bond pricing and interest rates) but that she thinks the US will motor through (this comment is not so good).  The bond traders and the equity markets are paying more attention to the first part of her comment as the bond has improved since her comments while the stock market as sold off.

Tomorrow we get Jobless Claims and Part 2 of Janet Yellen.  Friday brings some important and / or interesting data with Retail Sales, Import Price Index, Business Inventories and the Michigan Consumer Sentiment Index.  I would continue to float if you or a client has a loan closing 15+ days out.  If the closing time is less, take advantage of the great run-up and lock that rate.  If you float, make sure you keep a watchful eye on the market just in case there is a rapid move against you.  I'm always available to help with anything mortgage related - 702-812-1214, 8801-853-8720 or jed.wunderli@noblehomeloans.com.  Make it a great day.

Mortgage Bond Market Analysis - It's all about the oil, baby

It's Monday Morning after the Super Bowl and the financial markets are trying to grab all of the headlines.  I didn't have a dog in the fight yesterday so I enjoyed the game - two good defenses slugging it out with Denver's being dominant.  Von Miller was amazing and won the MVP as he should have.  I also really liked Lady Gaga's performance of the National Anthem.  But this blog is about the mortgage bond market so let's get to it.

The last couple of weeks has been all about the price of oil with regard to the mortgage bond market and the resulting interest rates along with a bit of attention being given to some economic data points.  Oil is down enough this morning to throw the stock market into a tizzy fit which is good news for mortgage bonds.  All three major US stock indices are down over 2% with the NASDAQ down 2.86% - in case you're wondering, this is big.  As a result, investors are buying gold and bonds and the FNMA benchmark bond is up 34 basis points to 102.58 - five basis points above the 2nd level of resistance.  The RSI remains in overbought territory so between these two things there is headwind but as long as oil remains low (or moves lower) and as long as the economic data is weak, bonds will be a good investment.

The Labor Market Conditions Index came in at .4 vs. previous of 2.9.  Not a big market mover as far as economic data is concerned.  Tomorrow we get wholesale inventories and JOLTS.  Wednesday we get comments from Janet Yellin which may impact the market - in either direction - depending on what she says.  We also have a 3 year bond auction tomorrow and a 10 year auction on Wednesday so bond traders will be looking to see how they are absorbed into the market.  With the move this morning, it's a great time to lock in gains.  However, it may not be a bad idea to float through tomorrow afternoon as long as you keep a close eye on the market so that you can lock quickly in case things turn against you.

Contact me if I can help with anything mortgage-related - 702-812-1214, 801-853-8720 or jed.wunderli@noblehomeloans.com.  Make it a great day and a better week.

EDIT:  Back to the Super Bowl - my top 3 commercials were:

1. Dorito's Baby commercial
2. Hyundai First Date commercial
3. Toyota Prius commercial

Honorable mention:  Marmot.

Mortgage Bond Market Analysis - Non-farm Payrolls and Unemployment Rate

Happy Friday.  We've got some important data that was released this morning so let's dive right in and take a look at how it came in.  Non-farm Payrolls came in rather light at 151K vs. estimates of 190K and previous of 262K (this was revised down 30K from the initial reading of 30K - how do they get this number wrong?  Do companies say "Oops, we decided not to offer these jobs after all?).  With a weak number like this, you might expect bonds to be rallying, right?  Well somehow the unemployment rate went down from 5.0 to 4.9% but that's not a big deal because traders are smart enough to know that the employment situation isn't nearly as good as that number would have you believe, especially considering the NFP number.  They know that the real reason why the unemployment rate dropped is because a number of people dropped out of the work force and "stopped" looking for work and are no longer on the unemployment rolls.  I can't wait to see what the Labor Force Participation Rate looks like later this month.

Bonds are down 18 basis points right now after closing down 13 basis points on Wednesday but up 12 yesterday.  The reason for the decline is probably due to the increase in the Average Hourly Wage to .5 vs. estimates of .3 and previous of 0.  This is likely due to the fact that most of the recent new jobs have come in the 25-54 age range that pays a higher wage relative to those in the 16-19 age range that were the bulk of the creation recently.  This wage inflation, like any inflation, scares the bond market and is the likely culprit of the sell-off.  The FNMA 3.0 benchmark bond is up 258 basis points from December 30th's open which means rates are better by about .5 - .625%.  The chart shows that we are at the top of the range and that we are overbought so there are some technical reasons to look for some profit taking.  If oil pushes higher, look for bonds to sell off more but if oil drops, bonds could benefit.  Other than that or some global instability, I don't see rates getting any better.  Some experts are recommending floating and while it doesn't look like there's much harm in doing that, I'm not sure there's much to gain either.   Data next week is light, at least at the beginning, so we may get lucky and see some more buying which would be beneficial for rates.  However, considering the fact that we are very near the top of a 1+ month run, I would lock and float down if you get that lucky.

Contact me if I can help with anything mortgage related - I'm available over the weekend if you need a quick pre-approval - 702-812-1214, 801-853-8720 or jed.wunderli@noblehomeloans.com.  Make it a great day and a better weekend.

EDIT:  Initial Jobless Claims, released yesterday, came in at 285K vs. expectations of 280K and previous of 278K.

Mortgage Bond Market Analysis - Hump Day and Kick-off of Jobs Data

Happy Hump day.  Don't be too surprised but we have some mixed data today.  January Private Payrolls came in at 205K vs. estimates of 195K - negative for rates.  Additionally, December's number was revised up to 267K from 257K - also negative for rates.  The January Non-manufacturing Index (service sector) came in at 53.5 vs. estimates of 55.1 - lower than estimates but still expansionary as it's above the critical 50 threshold.  December's number was revised up from 55.3 to 55.8.  The fact that the number was lower than last month's (somewhat considerably) and it missed the estimate is positive for pricing but since it was still solidly above the 50 threshold, traders may not be in too much of a buying mood considering that the service sector is about 80% of our economy and this reading is still good news.

On Monday, I recommended locking before today.  We had a nice move up yesterday with the FNMA benchmark bond up 30 basis points, closing at 104.88.  With such a high price, this morning the benchmark bond was changed to the FNMA 3.0 vs. the 3.5 which it has been for quite some time.  The new benchmark bond is up 3 basis points on the day but has capitulated throughout the morning, starting off down, then moving considerably higher and is now back to slightly up for the day.  It is currently 9 basis points above the 1st level of resistance and 13 points below the 2nd level.  The RSI is also overbought.  I believe there are two things continuing to drive the upward movement in bonds:  1) low oil prices and 2) the belief that the Fed may not raise rates as quickly as they said in their December meeting; the market seems to be pricing in no more rate increases this year which is a 180 degree turn-about from December when the Fed was talking about an increase in 2016 of as much as 1.375%.  There's not a lot of data tomorrow that's likely to move the market - Jobless Claims haven't been that impactful lately and the other data points aren't rate drivers.  Friday will have some important stuff to watch out for.  Like on Monday, I think it's o.k. to float but I'm not sure there much upside to be had so locking now allows you to take advantage of great rates and protect yourself against a sell-off in case Friday's numbers are better than expect or oil moves higher.  

If you read my blog regularly, you may know that I have a variety of spreadsheets to help people on a wide variety of topics from understanding the benefits of real estate investing to financial concepts such as time-value of money and why you should put less money down (to a point) and invest the rest (don't put 50% down, put 20% down and invest the other 30%).  I just finished updating my Rent vs. Own spreadsheet that details the benefits of homeownership from a financial perspective.  I'm happy to personally review these with you so that you can see how it impacts your specific situation or if you would like a copy of the spreadsheet, contact me at 702-812-1214, 801-853-8720 or jed.wunderli@noblehomeloans.com.   Make it a great day.

Mortgage Bond Market Analysis - Mixed (Weak) Data Monday

Happy Monday.  We have a few data points to start what will be a big week with Jobs data being the focus.  Last week I wrote (as I've done several times over the last year) about how the consumer confidence levels are all very high especially when you consider that the economy is still very weak and consumer spending isn't happening.  Usually when consumers are confident, they show it by spending.  Well Personal Income was at .3 for December, in line with the previous reading and higher than expectations (.2).  The problem is that in spite of a bit more income and a high level of consumer confidence, Personal Expenditures were 0 vs. expectations of .2 and previous of .3.  Core Personal Consumption Expenditures were also 0 vs. expectations and previous of .1.  The ISM Manufacturing Index came in at 48.2, .2 above expectations but any reading below 50 is contractionary so this is not good.  On Wednesday, in addition to ADP Private Payrolls, we get the ISM Non-manufacturing Index which has been above 55 the last few readings and is expected at 55 this time.  The service sector is our greatest employment sector by far in the US so we need strong readings here.

From a technical standpoint the FNMA benchmark bond is 10 basis points below the 2nd resistance level of 104.67.  The RSI is overbought as you might expect after last week's run of 5 consecutive days in the green.  Oil is still the driver and both the stock and bond markets are taking their cues from what oil is doing.  Oil is down today and both the stock and bond markets are down, though the stock market is getting hit harder.  Typically with data like we got and oil being down, we might expect bonds to be up but there is probably some profit-taking going on.  T. Boone Pickens thinks that oil hit its bottom at $26.15 per barrel and said that based on past history, he thinks it's very possible that oil will double in the next 12 months.  Additionally, some experts in the financial markets are saying that we may not get another rate hike until 2017 because of the economy.  If the Fed stands pat for the rest of the year, that will help keep mortgage rates low but if oil rises like Picken's thinks they might, that will cut into people's discretionary income which they are already hesitant to spend which will further slow the recovery.

I think the market will be on the quiet side as it awaits the various data points relating to jobs / employment.  Because of this, I don't think there's much upside to floating and I would certainly lock ahead of the jobs data since good numbers here will have a negative impact on interest rates.  Contact me if I can help with anything - 702-812-1214 or 801-853-8720 (jed.wunderli@noblehomeloans.com).  Make it a great day.