Market confusion and uncertainty continue to play out in the financial markets. Yesterday stock indexes fell and the treasury and mortgage markets improved, this morning the stock indexes better and treasuries under some pressure. With increasing concerns that the Fed will begin tapering its easing’s and mixed economic outlooks based on data that hasn’t shown much growth, investors are still being “forced” into equity markets as the Fed continues to keep interest rates so low there is nowhere else to go. The bond and mortgage markets feeling the pain as rates increase, however it was inevitable rates would increase, they really could not go lower frm levels seen earlier this year.
At 9:30 the DJIA opened +100 after declining 116 yesterday, NASDAQ +20, S&P +8. The 10 yr at 2.22% at 9:30 up 3 bp and 30 yr MBS price down 11 bps frm yesterday’s close.
More mixed data this morning, for the first time in a month weekly mortgage applications have increased frm the previous week. Mortgage applications increased 5.0% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending June 7, 2013. The Refinance Index increased 5.0% from the previous week. Despite the increase in the refinance index last week, the level is still 11% lower than two weeks prior and 36% lower than the recent peak at the beginning of May. The seasonally adjusted Purchase Index increased 5% from one week earlier. The refinance share of mortgage activity increased to 69% of total applications from 68% the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 7% of total applications. The HARP share of refinance applications fell from 32% the prior week to 29%. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) increased to 4.15%, the highest rate since March 2012, from 4.07%, with points increasing to 0.48 from 0.35 (including the origination fee) for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,500) increased to 4.25%, the highest rate since May 2012, from 4.20%, with points increasing to 0.32 from 0.28 (including the origination fee) for 80% loans.
The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA increased to 3.81%, the highest rate since April 2012, from 3.76%, with points decreasing to 0.26 from 0.32 (including the origination fee) for 80% loans.
The average contract interest rate for 15-year fixed-rate mortgages increased to 3.32%, the highest rate since April 2012, from 3.23%, with points remaining unchanged at 0.38 (including the origination fee) for 80% loans.
The average contract interest rate for 5/1 ARMs increased to 2.78%, the highest rate since June 2012, from 2.76%, with points decreasing to 0.30 from 0.41 (including the origination fee) for 80% loans.
Earlier this morning the National Federation of Independent Business released its monthly detailed survey frm its members. “The NFIB Index of Small Business Optimism rose 2.3 points to 94.4. This is the second highest reading since the recession started (95.1 is the highest) and the best reading since May of last year, but not one signaling strong economic growth. This is not a surprise given the current state of paralysis in Washington and the still very mixed news on the economy. The Fed has promised to add another trillion dollars to its portfolio, a terrifying prospect to many observers. The federal deficit will be smaller, but still huge and basically financed by the Fed. While the stock market sets records, GDP posts mediocre growth and the unemployment rate remains in the mid-7s. Departures from the labor force, not job creation, contribute to its decline when it does fall. Pessimism about the economy and future sales did moderate, 8 of the 10 Index components gained, but planned job creation fell a point and reported job creation stalled after 5 “up” months. Capital spending was flat as were plans, the inventory picture improved a bit. But, overall, nothing to suggest a surge is underway. No issues on the credit side, most owners have no interest in a loan, regular borrowing activity fell to historic lows and complaints about the difficulties associated with getting a loan fell again. Reports of sales gains were flat. Consumer optimism is up, but it’s not clear why, as incomes and jobs are performing poorly. In early readings, optimism was up for high income consumers and down for low income consumer, perhaps a stock market effect. Not much to hang your hat on. So, we are back to where we were in May, 2012.”
There are no key economic data releases today but Treasury will auction $21B of 1 yr notes at 1:00 this afternoon. A key auction for the long end of the curve and for the MBS markets; weak demand will add a little more pressure to the mortgage markets. Yesterday Treasury sold $32B of 3 yr notes that met with weak demand; that however isn’t indicative of how the 10 will go.
Technically, the MBS market is skating on thin ice; we have support at 103.00 on a closing basis. This morning the price is trading at 102.99 at 10:00. Suggest keeping alert, so far we have recommended floating for the past two weeks that has not been helpful but not bad either. The 10 yr note, driver for mortgage rates continues to increase. If the 3.5 July FNMA coupon closes under 103.00 we will have to take the medicine and lock any floated loans.