Update: Market is showing improvement, the benchmark FNMA 4.5% coupon is up 12bps. Some lenders may re-price for the better. Shift to Float mode.
Here is today's Market Snapshot from RateAlert.com:
Rate markets started slightly softer today with the stock indexes aiming for a better open at 9:30. No real news overnight, and no key economic releases so the trade today will likely be focusing on the action in the stock market. At 9:30 the DJIA opened +24, 10 yr note -4/32 3.92% +1.5% and mortgage prices -4/32 (.12 bp).
There is nothing on the day's horizon that will garner any direct focus today. After the continuing volatility this week we expect a generally quiet day with the caveat that it depends on the way stock markets trade. If stock indexes have a strong day the bond and mortgage markets will be pressured somewhat but not much; conversely, if equity markets cave the bond and mortgage markets will improve. The 10 yr note found decent support when it ran up to 4.00% on Monday, since then a little backing down but still the outlook remains bearish. This morning the 10 at 9:30 at 3.91% and coming off a short-covering rally that took its rate back to 3.84%. Mortgage are continuing to track well with the 10 yr and still no evidence that the Fed's exit of MBS purchases has had little impact on mortgage rates. The relationship between the 10 yr note and MBSs has stayed in line with no evidence that mortgage rates are increasing more rapidly than treasuries.
There are still a few out there that believe that the recent increase in interest rates (treasuries and mortgages) is a result of the Fed ending its $1.25T MBS purchases. That is totally wrong and suggests a lack of understanding of what drives interest rates, and why rates are increasing now. The increase in rates has nothing special to do with the MBS markets. Rates are on the rise because each day the view on the economic outlook is improving and that the Fed has ended almost all quantative easing; with stated objective of tightening monetary policy after the near collapse of the banking system in 2008. The only thing that will take rates back lower is a change in sentiment about the future growth of the economy---a double dip. While we do not discount that as a possibility with high unemployment and a housing market that is nowhere near the rebound that many believe, as long as money flows to equities the path for rates is up. How high is the question; our estimate is that the bellwether 10 yr treasury will stay reasonably low and not breach 4.25%-4.30% with mortgage rates on 30 yr fixed holding under 6.00%, more likely 5.75%. It is a moving target, but unless there is a serious increase in the inflation outlook (which we do not expect this year) rates should be reasonably supported. The proof in the pudding on how much of an impact the Fed's exit will have on mortgages will be on any significant rallies in treasuries and how mortgage rates will move on a strong rally.
Besides the better equity markets this morning, treasuries are being pressured by the continuing issues surrounding Greece and its ability to make debt payments. One view has been that the EU, IMF or other entity will come to the rescue, it hasn't happened but there is progress.
At 10:00 the only news today; wholesale inventories for Feb, expected to be +0.3%, was up 0.6% with the inventory to sales ratio unchanged at 1.16 months. No reaction to the report but it is another plus for the economic outlook.
Comments(0)