After a little volatility this morning the mortgage markets settled down this afternoon. Stocks were lower all day but the trading didn't look anything like some kind of reversal, just taking a breather ahead of jobs data tomorrow and Friday. As usual with any declines in equities, going into the close the losses through the day were cut in half in the last 30 minutes from levels at 2:30.
This morning's ADP employment report may have taken a little wind from the sales of the markets, job losses at 532K in May and a revision from -491K in Apr to 545K isn't a strong building block.
Bernanke was testifying to the House Budget Committee today and did his usual best to paint the economy as one that has seen the worst, ditto on the financial system; but shot some arrows into the air. Spitting in the wind; "Unless we demonstrate a strong commitment to fiscal sustainability in the longer term, we will have neither financial stability nor healthy economic growth," Bernanke said in testimony to lawmakers today. "Maintaining the confidence of the financial markets requires that we, as a nation, begin planning now for the restoration of fiscal balance." Fiscal responsibility in Congress is a another oxymoron. His comments that the financial system is still stressed and unless fiscal constraint occurs the the fragile system could take another major hit; saying the Fed won't finance government spending over the long term.
"In recent weeks, yields on longer-term Treasury securities and fixed-rate mortgages have risen," Bernanke said. "These increases appear to reflect concerns about large federal deficits but also other causes, including greater optimism about the economic outlook, a reversal of flight-to-quality flows and technical factors related to the hedging of mortgage holdings." Generally Bernanke said he thinks the economy will bottom before the end of the year. That statement is one we would not take on its face; consumers, although having to spend on necessities, are not about to spend enough or see incomes increase this year and possibly next. Bernanke said what any Fed head would be expected to say about the recovery; jawboning however, has its limits.
PIMCO's Bill Gross has coined the next phrase that the media will eventually beat to death; speaking to what kind of economic recovery, Gross said " its no longer shop 'til you drop, its save to the grave"; very apropos, He is right on and with the new mantra. Gross also continues to warn that the
Weekly jobless claims at 8:30 tomorrow; expected to be another increase of 620K, look for The Street and its pundits to spin it as good news. Also tomorrow markets will drop back to supply when Treasury releases the amounts for next week's dip in the well; 3 yr, 10 yr and 30 yr issues next week. Interest rate markets will have a tough hill unless the equity market finally capitulates into a retracement. Friday, the current estimate consensus (another oxymoron for job guesses) 630K job losses with a range of estimates between 495K and 625K.
Mortgages are a little better now than at 10:00 but no one we know of re-priced better. Lenders are not going to get aggressive with pricing in this environment and the bearish outlook that currently exists. We say it everyday, but we feel we have to; unless the view of economic recovery that is sending stock markets up changes interest rates won't do much better, add in next week's supply and it is not likely we can expect much improvement. It is a risky trade now to be holding rate locks; if jobs data indicate more losses than expected rate markets are not likely to see yields decline much. All that said, those that have an appetite should hold locks, mortgages at 4:00 are 8/32 better than at 10:00.