The bond and mortgage markets opened a little better this morning with US and Europe stock markets lower. The DJIA appears to be finding it difficult to break and hold above the psychological 14K level; it made it on Monday, sold off Tuesday and then rallied yesterday but didn’t make over 14K. Treasuries and mortgages continue to be tied to how equity markets traded; investors and traders exiting the fixed income markets into equities where returns are better and are expected to continue to improve over the year.
There are no economic reports today; this week is skimpy on data. The only data out this morning; weekly mortgage applications. Applications increased 3.4% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending February 1, 2013. The Market Composite Index, a measure of mortgage loan application volume, increased 3.4% on a seasonally adjusted basis from one week earlier. The Refinance Index increased 4% from the previous week. The seasonally adjusted Purchase Index increased 2% from one week earlier was at its highest level since the week ending May 7, 2010. The unadjusted Purchase Index increased was 16% higher than the same week one year ago. The refinance share of mortgage activity decreased to 78% of total applications from 79% the previous week and is the lowest refinance share observed since early July 2012. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) increased to 3.73% from 3.67%, with points increasing to 0.43 from 0.42 (including the origination fee) for 80% loans. The contract interest rate for 30-year fixed mortgages has increased for seven of the last eight weeks. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,500) increased to 3.96% from 3.95%, with points decreasing to 0.38 from 0.39 (including the origination fee) for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA increased to 3.53% from 3.48%, with points increasing to 0.38 from 0.33 (including the origination fee) for 80% loans. The average contract interest rate for 15-year fixed-rate mortgages increased to 3.00% from 2.95%, with points decreasing to 0.33 from 0.38 (including the origination fee) for 80% loans. The average contract interest rate for 5/1 ARMs increased to 2.72% from 2.60%, with points decreasing to 0.30 from 0.33 (including the origination fee) for 80% loans.
The EU is climbing back into focus after months that the region seemed less a concern to global markets. Political uncertainty is increasing in Italy and Spain over recent reports of bank scandals in Spain and political scandals in Italy. On the more positive outlook in the EU; German factory orders rose in December as euro-area demand jumped, adding to signs that the region may be starting to recover from recession. The 17-nation euro economy is starting to improve after the sovereign debt crisis pushed it into recession last year. Spanish house prices halted a three-year decline in January and euro-area economic confidence rose to a seven-month high. Investors awaiting tomorrow’s ECB meeting also slowing things down in global equities. Pushing stocks higher recently has been stronger than expected earnings in Q4, although Q4 GDP declined 0.1% businesses continued to do well by reducing expenses and resisting hiring new employees.
At 9:30 the DJIA opened -61, NASDAQ -11, S&P -6. 10 yr note 1.97% -3 bp and 30 yr MBSs +18 bp frm yesterday’s closes.
Treasury this morning announced the details of next week’s quarterly refunding; the total is the same as the last few quarterly refunding. $32B of 3 yr notes next Tuesday, $24B of 10 yr notes next Wednesday and $16B of 20 yr bonds next Thursday. Nothing unusual about it.
The remainder of the session will be directed on how the stock market performs. US 10 yr note rate has been well-contained between 1.95% and 2.02% for almost two weeks. Unable to find traction for any corrective rally, but equally finding support when the 10 hits the 2.00% area. 30 yr MBSs also stuck as would be expected as treasuries sit quietly. Rate markets remain bearish in the wider perspective but as noted many times here, overdue for a technical correction. The same is true on equity markets, overdue fort a pullback but the wider outlook is strongly bullish at the moment. That there has not been any pullback in stocks is indication investors are overwhelmingly bullish, so far any attempt to fallback has been seen as a buying opportunity, implying that any correction will be minor at best---if at all.