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Market Comment for Week of December 5, 2011…

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MARKET COMMENT Mortgage bond prices ended slightly higher last week, which pushed mortgage interest rates lower. Stocks were stronger as the DOW surged higher by 291 points Monday and 490 points Wednesday. The Fed stepped in to help the EU deal with their debt crisis through some liquidity moves along with the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank. The moves generally helped equities across the globe. Mortgage bonds traded in a choppy but tight pattern throughout the week despite the strength in equities. MBS were buoyed by remarks from German Chancellor Merkel which indicated there is no quick fix and the solution to the Euro debt crisis will take years. Mortgage bonds ended the week better by approximately 1/8 to 1/4 of a discount point.

LOOKING AHEAD

• Factory Orders; Dec. 5; Consensus Estimate Down 0.5%; Important. A measure of manufacturing sector strength. Weakness may lead to lower rates.
• Consumer Credit; Dec. 7; Consensus Estimate $7b; Low importance. A significantly large increase may lead to lower mortgage interest rates.
• Weekly Jobless Claims; Dec. 8; Consensus Estimate 397k; Important. An indication of employment. Higher claims may result in lower rates.
• Trade Data; Dec. 9; Consensus Estimate $44.3b0 deficit; Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates.
• U of Michigan Consumer Sentiment; Dec. 9; Consensus Estimate 64; Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.

DISPARITY The 10 and 30-year Treasury bond yields are often viewed as “benchmarks”, reflecting the overall state of interest rates in the US economy. Many people concerned about mortgage interest rates track these bonds as a barometer for mortgage interest rates. However, in reality the Treasury and mortgage markets trade independently.

The supply and demand characteristics of Treasury bonds and mortgage-backed securities (MBS) differ significantly. Treasury securities represent money needed to fund the operations of the US government. MBSs, on the other hand, represent borrowing by homeowners.

Information related to Treasury bonds is relatively easy to come by. Almost every major news medium reports changes. On the other hand, accurate mortgage interest rate information is difficult and costly to obtain.

In the absence of information directly related to the mortgage interest rate markets, Treasury information can be useful in that the bond market generally trends in the same direction. However, mortgage interest rates can vary significantly. In fact, many times the Treasuries will trade wildly while MBS only see minor price changes and vice versa. Thus, differences between Treasuries and MBS sometimes lead to misleading price change differentials. Last Wednesday mortgage-backed securities closed down 2/32nds on the day while the 10-year Treasury fell 25/32nds and the 30-year Treasury fell 64/32nds. This is a prime example where anyone that looked solely at Treasuries thought the mortgage market was worsening when in reality mortgage interest rates were near unchanged on the day. The data provides a valuable lesson into the differences between treasury bonds and mortgage-backed securities. This is just another example of why looking solely at treasuries can lead people to the wrong conclusions.

Keying in on the correct information can mean the difference between making and losing a tremendous amount of money when making float and lock decisions in the short term.

Source: F&M Mortgage, Todd Kabel; MMIS, Rate Link; Blog distribution provided by Kenneth Bargers and Bargers Solutions, a proud member of Pilkerton Realtors, residential real estate services located in Nashville, Tennessee

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Market Comment for Week of October 31, 2011…

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MARKET COMMENT Mortgage bond prices ended last week lower, which pushed mortgage interest rates considerably higher. Stock strength Thursday along with advancements in the Eurozone battle to shore the debt crisis resulted in a terrible week for mortgage interest rates. Stocks remained volatile with 100 plus point swings from day to day but a strong 340-point surge in the DOW Thursday resulted in rate increases of 3/4 of a discount point on that day alone. Mortgage interest rates rose by almost a full discount point for the week.

The Fed results Wednesday afternoon will be the most important event this week. The employment report Friday will be the most significant data release for the month.

LOOKING AHEAD

• ISM Index; Nov. 1; Consensus Estimate 51.4; Important. A measure of manufacturer sentiment. Weakness may lead to lower mortgage rates.
• Construction Spending; Nov. 1; Consensus Estimate Up 0.8%; Low importance. An indication of economic strength. Significant weakness may lead to lower rates.
• ADP Employment; Nov. 2; Consensus Estimate 85k; Important. An indication of employment. Weakness may bring lower rates.
• Fed Meeting Adjourns; Nov. 2; Important. Few expect the Fed to change rates, but some volatility may surround the adjournment of this meeting.
• Weekly Jobless Claims; Nov. 3; Consensus Estimate 403k; Important. An indication of employment. Higher claims may result in lower rates.
• Preliminary Q3 Productivity; Nov. 3; Consensus Estimate Up 0.1%; Important. A measure of output per hour. Improvement may lead to lower mortgage rates.
• Factory Orders; Nov. 3; Consensus Estimate Up 0.1%; Important. A measure of manufacturing sector strength. Weakness may lead to lower rates.
• Employment Friday; Nov. 4; Consensus Estimate 9.1%, Payrolls +95k; Very important. An increase in unemployment or weakness in payrolls may bring lower rates.

STOCKS AND BONDS REMAIN VOLATILE Last week, mortgage interest rates rose sharply following the relatively poor bid 7-year Treasury note auction. As the US economy moves along, the demand for the lower yielding government-backed debt securities has whipsawed considerably. One day we see a flight to quality influx of investor funds, which drive prices up and rates down. The next day the inverse occurs.

The US stock market was on a roar the latter portion of the week at the expense of demand for mortgage-backed securities. As the stock market gained strength, investors sought higher returns by moving their money out of the bond market and into the higher yielding stock market. The whipsaw trading environment is likely to continue.

A cautious approach is necessary to protect against extreme short-term market volatility resulting in increased interest rates considering the improbability of accurately determining how the market will react on a short-term day-to-day trading basis. Taking advantage of the historically favorable interest rates at their current levels makes sense in this environment. We have seen in the last few weeks alone that lower rates are not a given.

Source: F&M Mortgage, Todd Kabel; Rate Link; Blog distribution provided by Kenneth Bargers and Bargers Solutions, a proud member of Pilkerton Realtors, residential real estate services located in Nashville, Tennessee

Market Comment for Week of October 3, 2011…

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MARKET COMMENT   Mortgage bond prices fell last week, which pushed mortgage interest rates higher. There was a strong sell-off throughout the beginning of the week following the prior week’s run up in prices. European authorities efforts to construct a new rescue framework dominated the news and resulted in a reversal of the flight to quality buying of US debt instruments. Stocks were extremely volatile throughout the week but surged higher at times, which didn’t help mortgage bonds. The revised Q2 GDP data was slightly higher than expected. There was a rebound Thursday afternoon and Friday morning following the depressed prices, however mortgage bonds still ended the week worse 3/8’s in discount points.

Bernanke’s words Tuesday will set the tone for trading this week. The employment report Friday will be the most significant data.

LOOKING AHEAD

• ISM Index; Oct. 3; Consensus Estimate 50.4; Important. A measure of manufacturer sentiment. A large decline may lead to lower mortgage rates.
• Construction Spending; Oct. 3; Consensus Estimate Down 1.5%; Low importance. An indication of economic strength. A significant decrease may lead to lower rates.
• Factory Orders; Oct. 4; Consensus Estimate Up 1.3%; Important. A measure of manufacturing sector strength. A larger decrease may lead to lower rates.
• Bernanke Speaks; Oct. 4; Important. Fed Chairman speaks to a bipartisan congressional panel on the economy.
• ADP Employment; Oct. 5; Consensus Estimate 65k; Important. An indication of employment. Weakness may bring lower rates.
• Weekly Jobless Claims; Oct. 6; Consensus Estimate 385k; Important. An indication of employment. Higher claims may result in lower rates.
• Employment Friday; Oct. 7; Consensus Estimate 9.1%, Payrolls +25k; Very important. An increase in unemployment or a large decrease in payrolls may bring lower rates.
• Consumer Credit; Oct. 7; Consensus Estimate $11b; Low importance. A significantly larger than expected increase may lead to lower mortgage interest rates.

MONEY SAVING OPPORTUNITY    It was August 2007 when rates on jumbo loans disconnected from reality and skyrocketed. This was the beginning of the credit crisis, which to some extent has touched everybody on planet earth.

Since then we have been through trillion dollar bailouts, a near collapse of the banking and automotive industries, a stock market in freefall and house prices not too far behind. Stocks have recovered somewhat, and in some places housing is showing some life as well. Most economic pundits believe that we are not out of the woods and things may become worse before they get better.

The good news is that through actions from the Federal Reserve interest rates are at all time lows, presenting an opportunity for many homeowners to receive a self funded bailout by dramatically reducing the interest rate on their mortgage. Nobody knows how low rates will go but there is certainty that rates are at historic lows and they will not last forever. Saving money today makes a lot of sense in these difficult and uncertain times.

Source: F&M Mortgage, Todd Kabel; Blog distribution provided by Kenneth Bargers and Bargers Solutions, a proud member of Pilkerton Realtors, residential real estate services located in Nashville, Tennessee

Market Comment for Week of May 2, 2011…

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MARKET COMMENT   Mortgage bond prices rose slightly last week pushing mortgage interest rates lower. The Fed meeting resulted in no interest rate adjustments at this time despite continued talk of inflation fears. The data was mixed. Durable goods orders came in higher than expected pushing rates higher Wednesday morning. Weekly jobless claims came in at 429k, higher than the expected 390k and helped rates recover and rally Thursday. Mortgage bonds ended the week better by about 1/2 of a discount point. 

The employment report will be the most important release this week. The weekly jobless claims and ADP data will also shed light on the state of employment. 

LOOKING AHEAD 

  • ISM Index; May 2; Consensus Estimate 61.1; Important. A measure of manufacturer sentiment. Weakness may lead to lower mortgage rates.
  • Factory Orders; May 3; Consensus Estimate Up 0.1%; Important. A measure of manufacturing sector strength. Weakness may lead to lower rates.
  • ADP Employment; May 4; Consensus Estimate 125k; Important. An indication of employment. Weakness may bring lower rates.
  • Weekly Jobless Claims; May 5; Consensus Estimate 420k; Important. An indication of employment. Higher claims may result in lower rates.
  • Preliminary Q1 Productivity; May 5; Consensus Estimate Up 2.2%; Important. A measure of output per hour. Improvement may lead to lower mortgage rates.
  • Employment; May 6; Consensus Estimate 8.7%, +205k; Very important. An increase in unemployment or a large decrease in payrolls may bring lower rates.
  • Consumer Credit; May 6; Consensus Estimate $7.5b; Low importance. A significantly large increase may lead to lower mortgage interest rates.

ADP EMPLOYMENT   The ADP employment report is a measure of employment derived from data of roughly 500,000 US businesses. The survey focuses on the private sector of the economy. In contrast, the Bureau of Labor Statistics releases the regular employment report which includes both private and government employment statistics. 

The ADP employment report has gained more prominence lately in that it is delivered prior to the Friday employment report. This gives analysts an improved forecast heading into the payrolls component of the employment report later in the week. 

The Fed is usually focused on keeping inflation in check. Tightening employment conditions can result in wage inflation. The ADP report provides solid data on these conditions. Despite this, the data still can diverge from the regular employment report. The employment report is derived from a household survey and an establishment survey. These surveys often differ from one another and from the ADP employment report in that they are based on different data sets. There are no guarantees that the most important employment report the first Friday of each month will mirror the ADP report released 2 days prior. With this in mind floating into the data is always very risky. Now is a great time to take advantage of mortgage interest rates at these historically favorable levels to avoid future market volatility. 

Source: Todd Kabel, F&M Mortgage; Blog provided by Kenneth Bargers and Bargers Solutions residential real estate services located in Nashville, Tennessee

Market Comment for Week of March 28, 2011…

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MARKET COMMENT   Mortgage bond prices fell last week pushing mortgage interest rates higher. Stocks generally showed strength throughout the week, which didn’t help mortgage bonds. Reports of Japan stabilizing their nuclear facilities resulted in a reversal of the earlier flight to quality buying of US debt. New home sales data came in weaker than expected which helped rates bounce back a bit mid-week. Unfortunately Fed Official Plosser’s comments Friday afternoon sent bonds falling and rates higher. Plosser indicated monetary policy will soon need to reverse course and that the preferred exit strategy would raise rates and reduce the Fed’s balance sheet concurrently. Mortgage bonds ended the week worse by about 3/4 of a discount point. 

The Treasury will auction 2-year notes on Monday, 5-year notes on Tuesday, and 7-year notes on Wednesday.

LOOKING AHEAD 

  • Personal Income and Outlays; March 28; Consensus Estimate Up 0.4%, Up 0.6% Important. A measure of consumers’ ability to spend. Weakness may lead to lower mortgage rates.
  • PCE Core Inflation; March 28; Consensus Estimate Up 0.2%; Important. A measure of price increases for all domestic personal consumption. Weaker figure may help rates improve.
  • Consumer Confidence; March 29; Consensus Estimate 70; Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.
  • ADP Employment; March 30; Consensus Estimate 180k; Important. An indication of employment. Weakness may bring lower rates.
  • Weekly Jobless Claims; March 31; Consensus Estimate 365k; Important. An indication of employment. Higher claims may result in lower rates.
  • Factory Orders; March 31, Consensus Estimate Up 2.4%; Important. A measure of manufacturing sector strength. Weakness may lead to lower rates.
  • Employment; April 1; Consensus Estimate 8.9%, 160k; Very important. An increase in unemployment or weakness in payrolls may bring lower rates.
  • ISM Index; April 1; Consensus Estimate 61; Important. A measure of manufacturer sentiment. A large decline may lead to lower mortgage rates.

INCOME & OUTLAYS   The personal income and outlays release is a monthly report issued by the Bureau of Economic Analysis (BEA). The data is important because it is thought to provide a solid indication of future consumer demand. The personal income component is primarily a measure of wages and salaries. The outlays component is primarily a measure of spending on goods and services. Together the figures provide analysts valuable insight into consumer economic standing and consumption. 

The prior release showed an increase in wages and salaries. Some of that was attributed to a cut in the payroll tax. If that trend reverses future weakness could adversely affect consumer spending and the entire US economy. Decreased or stagnant wages coupled with tighter borrowing restrictions make it difficult for consumers to spend money. It is important to note that no single economic indicator can consistently predict the future of the economy. However, the personal income and outlays report is a closely watched release. The consumer remains a vital component of the US economy. 

The release this week has the potential to move the financial markets. Now is a good time to take advantage of mortgage interest rates at their current levels to avoid market volatility. 

Source: Todd Kabel, F&M Mortgage; Blog distribution provided by Kenneth Bargers and Bargers Solutions residential real estate services located in Nashville, Tennessee

Market Comment for Week of February 28, 2011…

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MARKET COMMENT   Mortgage bond prices rose last week helping mortgage interest rates fall. Turmoil in many of the oil producing countries sent oil prices skyrocketing higher. Normally rising energy prices cause inflation fears but we are not in normal times. Rising energy prices ignited concerns about the global economic recovery and sent a wave of buying into US debt instruments. Data was mixed. Weekly jobless claims and new home sales were lower than expected while consumer confidence and consumer sentiment data were higher than expected. The Treasury auctions generally went well and did not move the market much. Mortgage bonds ended the week positive by a favorable 7/8 of a discount point. 

PCE core inflation data leads the wave of significant data this week and the employment report will be the headline release Friday morning. 

LOOKING AHEAD 

  • Personal Income and Outlays; Feb. 28; Consensus Estimate Up 0.3%, Up 0.4%; Important. A measure of consumers’ ability to spend. Weakness may lead to lower mortgage rates.
  • PCE Core Inflation; Feb. 28; Consensus Estimate Up 0.1%; Important. A measure of price increases for all domestic personal consumption. Weakness may help rates improve.
  • ISM Index; March 1; Consensus Estimate 60; Important. A measure of manufacturer sentiment. Weakness may lead to lower mortgage rates.
  • ADP Employment; March 2; Consensus Estimate 155k; Important. An indication of employment. Weakness may bring lower rates.
  • Fed “Beige Book”; March 2; Important. This Fed report details current economic conditions across the US. Signs of weakness may lead to lower rates.
  • Weekly Jobless Claims; March 3; Consensus Estimate 390k; Important. An indication of employment. Higher claims may result in lower rates.
  • Revised Q4 Productivity; March 3; Consensus Estimate Up 2.3%; Important. A measure of output per hour. Improvement may lead to lower mortgage rates.
  • Employment Friday; March 4; Consensus Estimate Unempl. 9.1%, Payrolls 190k; Very important. An increase in unemployment or weaker payrolls may bring lower rates.
  • Factory Orders; March 4; Consensus Estimate Up 2.1%; Important. A measure of manufacturing sector strength. Weakness may lead to lower rates.

FED “BEIGE BOOK”   The Fed “Beige Book” is a summary of economic conditions from each of the 12 Federal Reserve regional districts. The release takes place eight times a year approximately two weeks ahead of each of the Federal Open Market Committee meetings. The report is used at the FOMC meetings, which tends to be one of the most influential events in the market. 

Market participants are continually attempting to determine what FOMC interest rate policy will be ahead of the next meeting. Any deviation from expectations usually results in extreme short-term market volatility. The timing of the “Beige Book” provides analysts a valuable look at one of the many factors the FOMC considers in setting interest rate policy. If the “Beige Book” shows signs of inflationary pressures, the Fed’s ability to keep rates lower may be somewhat restricted. However, if the report shows signs of difficulties, the Fed may keep rates low to stimulate the economy. Be cautious heading into this release. 

Source: Todd Kabel, F&M Mortgage; Blog distribution provided by Kenneth Bargers and Bargers Solutions residential real estate services located in Nashville, Tennessee

Market Comment for Week of January 31, 2011…

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MARKET COMMENT   Mortgage bond prices rose last week pushing mortgage interest rates lower. There were several Treasury auctions and most resulted in decent foreign demand. Stock strength the middle of the week along with higher than expected new home sales put some upward pressure on rates. Volatile oil prices also factored into trading. Saudi remarks indicated they might increase production. This helped stem some of the oil price spikes in the middle of the week but world benchmark prices remained near the $100/barrel mark and US benchmark prices were near $90/barrel as unrest in Egypt continued. Stock weakness and weaker than expected GDP figures led to rate improvements Friday afternoon. Mortgage bonds ended the week positive by about 1/8 to 1/4 of a discount point despite the continued market swings. 

LOOKING AHEAD 

  • Personal Income and Outlays; Jan. 31; Consensus Estimate Up 0.3%, Up 0.4%; Important. A measure of consumers’ ability to spend. Weakness may lead to lower mortgage rates.
  • PCE Core Inflation; Jan. 31; Consensus Estimate Up 0.1%; Important. A measure of price increases for all domestic personal consumption. Weakness may help rates improve.
  • Construction Spending; Feb. 1; Consensus Estimate Up 0.3%; Low importance. An indication of economic strength. Significant weakness may lead to lower rates.
  • ISM Index; Feb. 1; Consensus Estimate 56.5; Important. A measure of manufacturer sentiment. Weakness may lead to lower mortgage rates.
  • ADP Employment; Feb. 2; Consensus Estimate 240k; Important. An indication of employment. Weakness may bring lower rates.
  • Revised Q4 Productivity; Feb. 3; Consensus Estimate Up 2.4%; Important. A measure of output per hour. Improvement may lead to lower mortgage rates.
  • Weekly Jobless Claims; Feb. 3; Consensus Estimate 444k; Important. An indication of employment. Higher claims may result in lower rates.
  • Factory Orders; Feb. 3; Consensus Estimate Up 0.5%; Important. A measure of manufacturing sector strength. Weakness may lead to lower rates.
  • Employment; Feb. 4; Consensus Estimate 9.5%, Payrolls up 85k; Very important. An increase in unemployment or weakness in payrolls may bring lower rates.

ISM   The Institute for Supply Management (ISM), formerly the National Association of Purchasing Management (NAPM), releases the “Report on Business” on the first working day of each month. Part of this report is the “diffusion index,” which tracks the economy’s ups and downs fairly well. 

In conducting this survey, the ISM questions purchasing executives from over 250 industrial companies compiling data on production, orders, commodity prices, inventories, vendor performance, and employment. Each of the respondents is asked to rank the categories as “up” or “down.” Various weights are applied to the individual components to form the composite index. 

A composite index reading of 50 can be thought of as a “swing point.” A reading above 50 implies an increase in economic activity, while a reading below 50 indicates a decline. The ISM report is difficult for economists to forecast because there is little data upon which to base an educated guess. The report has a large “surprise factor” and can cause market swings. 

Source: Todd Kabel, US Bank; blog distribution provided by Kenneth Bargers and Bargers Solutions residential real estate services located in Nashville, Tennessee

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