Selling in the mortgage markets continued today (until about 3:00) as wholesalers and originators race to get ahead of the increasing interest rate markets. It took two and a half months of rising 10 yr note rates, from 2.50% to 3.73% yesterday, while at the same time mortgage rates hardly increased. Yesterday someone turned on the light and realized that just because the Fed will buy a total of $1.25T of MBSs that would not be enough to counter the 125 basis point increase in the 10 yr note. That said, we are now looking for the 10 to retrace some of the rapid increase in rates and will also support the mortgage markets. Not likely though that the trend in the rate markets will turn from bearish to bullish so any rallies in rates should be seen as an opportunity to get some business done. Likely though, when there is an improvement in mortgage rates most will miss it as they will wait to long, being too greedy to squeeze the last drop out of the pipe.
The stock market is as strong as a rock, we continue to look for a retracement in that market, and yesterday it appeared we may have it; today, however the indexes rallied again, recovering much of the decline yesterday. Any real chance for a big decline in rates rests with the possibility that the equity markets will reverse and make a big move lower. So far equities have shrugged off any negative news in favor of the view that the economy has bottomed. A good example of ignoring bad news came this morning with the April durable goods orders; increasing 1.9% against forecasts of +0.5%, nice on the surface but in March durables were revised today from -0.8% to -2.1%; and March new home sales originally reported-0.6% were revised to -3.0% (April +0.3%). And the lower revisions from previous months has been the norm for many of the 45 economic reports released each month.
Auction of $26B 7 yrs saw a higher 3.300% with a bid-to-cover of 2.26 and an indirect bidder take of a near average 33.0%. The market was not impressed, but had also been fairly well prepared for a sloppy outing. Not as bad as many were thinking this morning and gave some relief to treasury rates as we move to the end of the session. Supply will take a rest now for two weeks, then back again with a 3 yr, 10 yr and 30 yr offering. So far the fear the Chinese would make good on their comments that it may not be so aggressive in buying US debt has not materialized.
Foreclosures are on the increase; foreclosure starts jumped 27% in the first quarter to 1.33% of all outstanding residential loans as state foreclosure moratoriums expired and it became clear that certain at-risk homeowners couldn't qualify for government-mandated loan modification programs. At year-end the foreclosure start rate was 1.08%. 53% of foreclosure starts in the quarter were so-called prime mortgages. According to figures compiled by the Mortgage Bankers Association, 9.12% of all home mortgages were in some stage of delinquency/foreclosure at the end of March, that equates to a total of $874B of delinquencies. 25% of all sub primes are delinquent; 7.28% of all mortgage loans are 90 days late.
Tomorrow more data; at 8:30 Q1 preliminary GDP is expected at -5.5%, up from -6.1% reported in the advance report a month ago. At 9:45 the May Chicago purchasing mgrs index is expected at 42.0 frm 40.1 in April. The U. of Michigan consumer sentiment index at 9:55 is expected to have increased to 68.0 frm 67.9 two weeks ago; last Tuesday the Conference Board reported its consumer confidence index jumped to a very strong 54.9 frm 40.8 in April.
We said this morning that the mortgage markets would be volatile today; they were. Mortgage prices started weak, got weaker and weaker, then about 3:00 this afternoon found traction and bounded to be unchanged on the day at 4:00. The 10 yr also was volatile; up early, then sold off at mid-day and then after the 7 yr note auction found footing to trade 7 basis points lower than yesterday's close. We can expect intraday and interday volatility to be high for the next week or so.