Mortgage Backed Securities are plus 6 basis points today. A move of 35 bps will move interest rates in either direction.
Interest rates continue to skip along the bottom. The latest fear coming out of Europe has created a locking opportunity. The Dow is currently on a five day losing streak. This has pushed investors into the arms of the bond market. The 10 year Treasury has traded as high as 2.05% in the last 30 days. Today the 10 year opened at 1.80%. These are the dips we spoke of when we encouraged to lock on the dips. Today is a great locking opportunity.
The only news left for this week is the Initial Jobless Claims and the Producer Price Index. These reports are not enough to move markets. They do however have the ability to add fuel to the fire. If the markets are heading down, this could accelerate the burn. We believe that Europe will be the story again this week. It seems this was the same topic a year ago. Everything changes and yet they are still the same.
The only positive out of all the turmoil is lower Milwaukee gas prices. The slow down in Europe will produce a slow down across the globe. That means less demand for oil and cheaper gas prices.
Mortgage Backed Securities are plus 16 basis points this morning. The current interest rate environment is tranquil. Volatility has taken a spring vacation.
This week we will get a look at the ISM report and a slew of job reports. Spain will also weigh on investors as it is reported the 4th largest economy in the Eurozone is in a recession. The US reported today that expansion in the Chicago region is lower, personal spending is lower than expected and personal income increased slightly. This is in line with the Fed's view of a slow steady recovery. That means there is no immediate need for stimulation of the economy. The current rate environment should hold in to June.
A shocking new twist to the housing market. Homes are selling for more than list price. There are actually bidding wars for properties in some areas. It appears that the government has been holding back its foreclosures. This has created a bidding war on some properties in select areas. The other problem is the people who are underwater can not sell their properties and that is helping create a market shortage.
The current market shortage is not being helped by low appraised values. Buyers are willing to pay over the list price of the home. The bank however will only lend on the very conservative appraised value. You have willing buyers and sellers and the only thing stopping them is the rules created by the government to over regulate the mortgage industry. The over regulation will only hinder the recovery.
Mortgage Backed Securities are PLUS 19 basis points this morning.
Mortgage rates have been stuck in a very tight trading range over the last few weeks. News trickles out of Europe like a drip from a faucet. The constant pang from the drip is enough to drive someone crazy. The markets have reacted just that way since the beginning of April. Swings from positive to negative sentiment are changing like the Wisconsin weather. March was hot and now April has cooled.
The FOMC meeting this week should keep investors on their toes. A change in the committee's language has been known to create huge swings in the market. The momentum of those swings has been easily shifted by positive or negative news out of Europe. We are four months into the year and there is no clearing in the economic picture. We can expect more of the same for the immediate future.
The Consumer Financial Protection Bureau is the latest government agency set up to fix the mortgage industry. Apparently the Dodd Frank Bill, HVCC, and paying for a payroll tax credit with funds from mortgage refinancing was not enough for the government. They have a new agency looking into changes to complicate mortgages further. This as we keep interest rates at historic lows to try and help the fledgling housing market. It seems one side of Washington does not know what the other is trying to accomplish. I guess that is the definition of Washington.
Milwaukee Mortgage Rates remain low.
Mortgage Backed Securities are MINUS 9 basis points this morning.
We had stated in previous Mortgage Rate Commentary posts to lock on the dips. This is a prime example of what we were forecasting. The earnings season kicked off yesterday after the bell. Alcoa surprised with a profitable quarter and their revenue grew. This was after the equity markets were in a massive sell off over European concerns. The surprise in earnings shows that the current mess in Europe has not reached over the pond yet. Continued good earnings will provide a spring board for stocks and hurt bonds and interest rates. Good news for rates is Europe seems like it will never get in the rear view mirror. That will allow for more volatility and opportunity for continued low rates. Here is part of a CNBC.com article:
Italy's one-year borrowing costs rose for the first time since November at a sale of short-term bills on Wednesday, mirroring fresh doubts about weaker euro zone countries and highlighting market nerves ahead of a major auction of three-year bonds on Thursday.
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Rome paid 2.84 percent to sell one-year debt, up from 1.405 percent at the previous auction in mid-March, reaching the highest level since December.
Contagion fears from neighbouring Spain's budget troubles and the slow progress of much-needed structural reforms have halted a falling trend for Italy's debt costs.
The authorities were quick to point to factors beyond Italy's shores.
"Even though demand was strong, as had been expected, the result of the auction reflected increased tensions on sovereign bonds in the euro area that resulted in a significant increase in yields," the central bank said in a statement.
Mortgage Backed Securities are MINUS 3 basis points this morning. A 35 basis point move usually causes mortgage interest rates to move.
This week is all about jobs. Wednesday we will get a preview to Friday's job reports. ADP is expected to announce Wednesday that 217,000 private sector jobs were created last month.This report is important because it will give credence to the Fed's view on the growing economy. Cleveland Fed President Sandra Pianalto said that trying to accelerate the pace of economic growth by easing monetary policy further could put price stability objectives at risk. A robust jobs report would show that the Fed's policy is correct and on track. There would be no need for QE3 and the current low rates Fed policy would stay in place.
Four job reports will be released on Friday. With the ADP report on Wednesday there should be no surprises on Friday. That is the last high impact report until Friday the 13th. That is when the Consumer Price Index is released. CPI is the price of a fixed basket of goods and reflects what most consumers pay and is a gauge for inflation. As long as inflation is in check the Fed can continue the low rates policy.
Milwaukee Mortgage rates remain low. The low Fed rate policy looks likely to continue.
Mortgage Backed Securities are MINUS 3 basis points today.
In a speech today Fed Chairman Ben Bernanke reiterated his reasons for ultra low rates. Here is a small piece from Martketwatch.com.
Improvement in the nation’s labor market since last fall may only be a reversal of large layoffs that hit during the recession, and further improvement may depend on faster economic growth, Bernanke said. “We cannot yet be sure that the recent pace of improvement in the labor market will be sustained,” said Bernanke in a speech to the National Association for Business Economics.
“There are a lot of things happening in the labor market we don’t fully understand,” he said. While the labor market may lead to a self-sustaining recovery, “we have not seen that in a persuasive way yet,” Bernanke added. “And I think it remains important for us to remain cautious and see how the economy develops,” he said.
Against this backdrop, the Fed’s current ultra-low interest rate policy can help, he said.
The well-worn axiom “don’t fight the Fed” is well worn for a reason: it’s a smart move. Stock-market investors who went long after the Fed cut interest rates to nearly zero in December 2008, or bought after the central bank’s various bond-buying initiatives, have been well-rewarded.
Ben has commanded: “Thou shalt take risk.” He also has commanded from Mount Jackson Hole, and other venues: “Bond rates shall stay low.”
Reuters
But Wall Street traders were starting to disobey. The yield on the 10-year note /quotes/zigman/4868283/delayed 10_YEAR +1.38% has been heading the other way. UBS economists have declared the three-decade long bull rally in government bonds is set to end.
Bernanke is fearful that an increase in yields will kill off the recent gains seen in the U.S. economy. That’s why the Fed has started quarterly press conferences and revealing the interest rate forecasts of Federal Open Market Committee members — all to keep a better grip on interest rates.
But that grip is loosening, and probably not helped by the hawks on the Fed who have been on the warpath saying the central bank really isn’t committed to low rates, after all. Just an hour before Bernanke spoke, Philadelphia Fed President Charles Plosser was in Paris, warning an audience of a central bank without boundaries.
Bernanke is willing to tolerate the likes of Plosser and Dallas Fed Chief Richard Fisher in the name of academic diversity so long as no one actually believes them. But confronted with evidence the hawks are making inroads, Bernanke went to Arlington, Va. to say who’s boss. The U.S. economy needs low interest rates and the Fed’s bond purchases.
These two blended articles from Marketwatch suggest that the ultra low Mortgage rate environment should continue.
Mortgage Backed Securities are PLUS 19 basis points today.
The bond markets have been getting crushed since March 6th. The Ten year Treasury was trading at a yield of 1.94%. March 14th the yield was at 2.27% and peaked at 2.38% on March 19th. Today the 10 year is trading at a yield of 2.25%. We wrote a few weeks ago that volatility may rear its ugly head and it is here. The good news is borrowers are finally taking the risk of rising interest rates seriously. The bad news is rates are moving higher.
The housing markets is seeing signs that it is stabilizing. We are starting to see an influx of first time home buyers taking advantage of the low rates and housing prices. The Fed maybe forced to quell this rise in interest rates over the next few weeks. The housing recovery is so fragile they will have to stare inflation in the face and let interest rates remain low. If they choose to stamp out inflation and let rates climb, it would be the end of the housing recovery for sure.
This week we also saw unemployment numbers decrease for the 5th consecutive month. Friday we will see New Home sale and Monday we will see pending home sales. Next week we will see $99 billion in new debt get auctioned off on Tuesday, Wednesday, and Thursday. Friday we will Personal Consumption Expenditures, Chicago PMI, and University of Michigan Sentiment. The theme of volatility will continue. I also heard pundits warn this morning of possible corporate earnings downgrades for next quarter.
Milwaukee Mortgages are low and will be volatile for the near future.
Mortgage Backed Securities are Minus 50 basis points today. Mortgage Backed Securities are Minus a total 88 basis points since the Fed announcement on Tuesday afternoon.
The Fed released its minutes yesterday afternoon and the equity markets roared and the bond markets fizzled. The Fed said the US economy is starting to show signs of life. They are seeing better than expected numbers in housing, retail, and manufacturing. They also have talked about the first signs of inflation. I guess gas approaching $4 per gallon should have been a clue on inflation. That means they may have to take out the money supply and raise rates. This comes when banks are passing the stress test and the VIX is at year lows. This is usually when see a slow and steady increase in rates.
Milwaukee Mortgage rates edged up today. Watch rates and lock on the dips. It looks like the Fed was the first March Madness game this year.
We will be closed until Monday the 19th. You can email us at wmsofwisconsin@att.net with any questions during that period.
Mortgage Backed Securities are Plus 6 basis points this afternoon.
The FOMC is meeting on Tuesday. They will be discussing QE3 and how long to hold interest rates low. We see volatility coming out of that meeting. Which direction is the million dollar question. We have seen pretty tranquil waters for the last few months. The Fed has kept to their previous statements and not changed any language in their announcements. The national pundits believe that may change tomorrow with some March Madness.
We are seeing a very tight range in all markets today. Investors are trying to regain their footing after the Greece bond swap last week. It seems no one wants to start any large positions one way or another.
Tuesday we will also get a read on Retail sales. There are two Manufacturing numbers due out on Thursday with Empire State and Philly Fed indexes being released. Friday the inflation numbers will released when we see the Consumer Price Index. That is plenty of news to move markets.
Today Milwaukee Mortgage rates edged up on certain products. The markets want to see more quantitative easing. Status quo from the Fed may result in a sell off of equities and bonds. A hint or a slight open door to esing would propel both the equities and the bonds.
Mortgage Backed Securities are plus 25 basis points today.
Greece is causing investors to run to the sidelines. The Volatility Index, referred to as the fear index, is up 15 percent today. That means investors are getting concerned over the possible default of Greece debt yet again. Last week we saw investors jump into the stock market as the Dow hit 13,000. That took the 10 year Treasury to a yield 2.06. Today the 10 year yield is 1.93. That just goes to show how fast sentiment can change.
There is one big surprise in the stock market being down 200 points on the Dow today. The yield fell dramatically on the 10 year. Mortgage Backed Securities are only plus 25 basis points today. A sharp movement like that would normally move MBS 50 basis points or more. That would normally cause lenders to reprice for the better and rates are pretty much unchanged from yesterday.
Investors are going to be on the side line until Thursday. That is when Bondholders and the Greek Government are supposed to have a bond swap program in place. There is speculation that it will not happen. That would put further pressure on the stock markets and help bonds.
Milwaukee Mortgage rates are low and should stay that way this week.
