Blog Archives

Mortgage Rates Highest in More than 2 Months

 

Mortgage rates moved higher today, bringing them to their worst levels since the morning of September 18th.  The average 30yr fixed rate for the most ideally qualified borrowers was already on the move up at the end of last week, but today’s weakness solidifies the move up from 4.375 to 4.5%.

 

Before September 18th, rates were higher still, in anticipation of the FOMC (the “Fed”) policy announcement that afternoon.  A clear majority of market participants expected the Fed to announce a reduction in asset purchases (QE).  When that didn’t happen, rates moved swiftly lower and have held in that range ever since.

 

Even with today’s losses, we’re still not back up to the pre-September FOMC levels (though we’re getting closer).  It’s an important consideration at the moment given that this week ends with the Employment Situation Report.  If any one report could be a lynchpin for Fed policy, this would be it, and the next FOMC Announcement is coming up just a week and a half later.

 

In other words, Treasuries and MBS (the “mortgage backed securities” that most directly affect rates) are once again getting in position for a potential change in Fed policy.  This greatly raises the stakes for economic data this week.  Rates can continue to move higher as long as the economic data stays strong

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Gains Despite Upcoming Treasury Auctions

Even with Treasury auctions coming up at 1pm today and tomorrow, bond markets are already pushing back against yesterday’s weakness.  This is happening in the absence of data or other event-based motivation.  It could be part of broader sideways momentum that stands a chance of remaining until next week’s FOMC Minutes.  It could also be something better than that, but we haven’t seen nearly enough positivity or volume in order to suggest it’s anything more than ‘leveling-off.’

MBS prices are up roughly 3/8ths of a point.  The 10yr Auction is coming up at 1pm and is the only significant event on the calendar.

The Day Ahead

 

Yesterday

 

– Uneventful sideways slide for MBS, albeit at slightly stronger levels

 

– No significant data or events; narrowest trading range in 5 months

 

– Markets waiting for NFP Friday and maybe GDP Thursday

 

– 10yr yields recovered to mid 2.64’s

 

Today

 

– Jobless Claims and GDP at 8:30am

 

– This is the first look at 3rd quarter GDP and it was delayed by the shutdown

 

– Impact mitigated by jobs report tomorrow

 

– Bond markets still haven’t made up their mind

MBS MID-DAY: Cautious but Meaningful Rally After ADP Data

Overnight trading deposited bond markets in just slightly better territory to start the domestic session.  Right off the bat, the ADP employment numbers had a positive effect on prices, but there was a strong push back from 8:30am to 9:00am for no overt reason.  Covert reasons abound, however, as traders increasingly show their hands regarding resistance around 2.47-2.48% in 10yr yields.

 

In other words, 10yr yields have continually shied away from breaking any lower than that, though MBS have increasingly outpeformed in the meantime.  Whereas 10’s are no lower than overnight lows, MBS are at their best levels since June.  The afternoon events could draw out some more conviction in Treasuries (meaning either a firmer bounce against recent yield floors or finally breaking them).

The Day Ahead: Last One Before FOMC

Larry Summers’ gift to bond market trading on Sunday/Monday was that we now have the honor of approaching Wednesday’s FOMC events with the “Larry Summers Discount” factored out of bond prices.  it turns out this isn’t quite as big as it looked to be early Monday morning, but it may have provided a slight adjustment for the previous approach.
In conjunction with the chart below, consider that the approach to FOMC had been occurring with 10yr yields (in red) trading above the teal, white, and yellow lines all month.  The Summers adjustment  now affords 10’s the opportunity to approach in a slightly more aggressive stance, but as you can see, even at it’s most aggressive levels, it wasn’t a game changer.  It barely challenged the longer term green line and wasn’t able to close outside it.
If bond markets were so clear to return near previous levels after that, it’s not overly likely that today’s Consumer Price Index data is going to do any better (forecast to rise slightly at the Core level from 1.7 to 1.8), let alone the NAHB Housing Market Index which is forecast to NOT reflect any of the recent concerns seen in other housing market metrics (59 vs 59 previously).
Week Of Tue, Sep 16 2013 – Fri, Sep 20 2013
Time
Event
Period
Unit
Forecast
Prior
Mon, Sep 16
08:30
NY Fed manufacturing
Sep
9.10
8.24
09:15
Capacity utilization mm
Aug
%
77.8
77.6
09:15
Industrial output mm
Aug
%
0.3
0.0
Tue, Sep 17
08:30
Annual Core CPI
Aug
%
1.8
1.7
08:30
Consumer Price Index (CPI)
Aug
%
0.2
0.2
08:30
Core CPI
Aug
%
0.2
0.2
10:00
NAHB housing market indx
Sep
60
59
Wed, Sep 18
07:00
MBA Mortgage market index
w/e
385.0
08:30
Housing starts number mm
Aug
ml
0.913
0.896
08:30
Building permits: number
Aug
ml
0.950
0.954
14:00
FOMC Announcement
N/A
%
14:00
FOMC Economic Projections
N/A
14:30
FOMC Chair Press Conference
N/A
Thu, Sep 19
08:30
Current account
Q2
bl
-96.8
-106.1
08:30
Initial Jobless Claims
w/e
k
330
292
10:00
Existing home sales
Aug
ml
5.34
5.39
10:00
Philly Fed Business Index
Sep
10.1
9.3
10:00
Leading index chg mm
Aug
%
0.4
0.6
13:00
10yr TIPS Auction
bl
13.0