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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 November 7, 2011…

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MARKET COMMENT Mortgage bond prices ended higher last week, which pushed mortgage interest rates lower. The financial markets remained extremely volatile. Most of the rate improvements came early in the week following Japan’s intervention to weaken the yen and Greek Prime Minister Papandreou’s indication that budget cuts would be put to a public vote. Unfortunately some of those rate improvements were erased when Papandreou retreated on the vote and the European Central Bank made a surprise rate cut. The employment report was mixed with the headline figure of 9% coming in lower than estimates while non-farm payrolls were weaker than expected. Despite the wild swings, mortgage interest rates fell by almost a full discount point for the week.

LOOKING AHEAD

• Consumer Credit; Nov. 7; Consensus Estimate $9.56b; Low importance. A significantly large increase may lead to lower mortgage interest rates.
• 3-year Treasury Note Auction; Nov. 8; Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.
• 10-year Treasury Note Auction; Nov. 9; Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.
• Weekly Jobless Claims; Nov. 10; Consensus Estimate 395k; Important. An indication of employment. Higher claims may result in lower rates.
• Trade Data; Nov. 10; Consensus Estimate $45b deficit; Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates.
• 30-year Treasury Bond Auction; Nov. 10; Important. Bonds will be auctioned. Strong demand may lead to lower mortgage rates.
• U of Michigan Consumer Sentiment; Nov. 11; Consensus Estimate 60.5; Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.

TRADE DATA In the distant past the US economy tended to be viewed as relatively unaffected by economic activity in other countries. However, increased trades with other countries and an increased reliance on foreign purchases of US debt have generated a market awareness of trade-related issues. The exchange rate of the dollar and foreign trade flows are interrelated. One must buy dollars to purchase US exports, and sell dollars to buy imports. Likewise, foreign investment in US debt requires the purchase of US dollars, and is thus affected by exchange rates.

Each month the Commerce Department gathers an enormous amount of detailed data on exports and imports. The data is broken between goods and services trade. The overall trade balance is the dollar difference between US exports and imports on a seasonally adjusted basis. The report also highlights trade flows between the US and various partners. Since the mid-1970’s, US imports of consumer and capital goods have exceeded exports, so a merchandise trade deficit has existed. The US has always maintained a service trade surplus, and because this surplus is not enough to offset the merchandise trade deficit, a net export deficit has resulted.

Due to the overwhelming amount of data considered, trade is difficult to forecast, and can present surprises. For a variety of reasons, the financial markets will often be unaffected by surprises in trade data. However, the data still has the ability to cause mortgage interest rate volatility.

Source: F&M Mortgage, Todd Kabel; Rate Link, MMIS; 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 July 11, 2011…

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MARKET COMMENT   Mortgage bond prices rebounded last week, which helped mortgage interest rates improve. Weaker than expected data resulted in positive rate movements. Factory orders and the employment report both failed to meet expectations. Factory orders rose 0.8% in contrast to the expected  1.0% increase. Unemployment came in at 9.2%, higher than the expected 9.1% mark. Payrolls increased 18k, considerably weaker than the expected 110k increase. Mortgage bonds ended the week better by about 5/8 of a discount point.

The Treasury will auction 3Y notes on Tuesday, 10Y notes on Wednesday, and 30Y bonds on Thursday. If foreign demand falters rates may come under pressure.

LOOKING AHEAD

  •  Trade Data; July 12; Consensus Estimate $43b deficit; Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates.
  • Fed Minutes; July 13; Important. Details of the last Fed meeting will be thoroughly analyzed. Weekly Jobless Claims; July 14; Consensus Estimate 420k; Important. An indication of employment. Higher claims may result in lower rates.
  • Retail Sales; July 14; Consensus Estimate Down 0.1%; Important. A measure of consumer demand. Weakness may lead to lower mortgage rates.
  • Producer Price Index; July 14; Consensus Estimate Up 0.2%, Core up 0.2%; Important. An indication of inflationary pressures at the producer level. Lower figures may lead to lower rates.
  • Consumer Price Index; July 15; Consensus Estimate Up 0.2%, Core up 0.3%; Important. A measure of inflation at the consumer level. Lower than expected increases may lead to lower rates.
  • Industrial Production; July 15; Consensus Estimate Up 0.2%; Important. A measure of manufacturing sector strength. A lower than expected increase may lead to lower rates.

Capacity Utilization; July 15; Consensus Estimate 76.8%; Important. A figure above 85% is viewed as inflationary. Weakness may lead to lower rates.

JOBS AND THE ECONOMY   Our economy in the US is driven by consumer spending, which accounts for almost 70% of Gross Domestic Product (GDP). Three driving forces, high unemployment, high commodity costs, and a depressed housing market are currently hampering consumer spending and thus keeping the recession intact.

It is simple; a person without a job can’t spend money because they don’t have any. High food and energy costs, items that must be purchased to keep a household running, saps money that could be used for other “luxury” items like TV’s and cars. Lastly, many relied on home equity to enhance lifestyles, pay for college, or make major improvements to the house.

The only way for the USto reduce our budget deficits and grow GDP is to get people back to work. We have a long way to go as the employment report showed last week.

Source: Todd Kabel, F&M Mortgage; 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 April 11, 2011…

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MARKET COMMENT   Mortgage bond prices fell last week pushing mortgage interest rates higher. Stocks continued to show strength throughout the week. The DOW was generally positive which didn’t help mortgage bonds. There were very few economic releases. The Fed minutes from the last meeting were released and inflation was the focus. The Fed indicated it is important to monitor inflation expectations but noted that a boost to inflation from rising energy costs will likely be transitory. Unfortunately the talk of inflation, real or perceived, generally caused fixed income securities such as mortgage bonds to fall and rates to rise. Mortgage bonds ended the week worse by about 3/8 of a discount point. 

The US Treasury will auction 3-year notes on Tuesday, 10-year notes on Wednesday, and 30-year bonds on Thursday. Strong foreign demand is needed in order for rates to push lower. 

LOOKING AHEAD 

  • Trade Data; April 12; Consensus Estimate $45.5b deficit; Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates.
  • Retail Sales; April 13; Consensus Estimate Up 0.7%; Important. A measure of consumer demand. Weakness may lead to lower mortgage rates.
  • Fed “Beige Book”; April 13; Important. This Fed report details current economic conditions across the US. Signs of weakness may lead to lower rates.
  • Weekly Jobless Claims; April 14; Consensus Estimate 380k; Important. An indication of employment. Higher claims may result in lower rates.
  • Producer Price Index; April 14; Consensus Estimate Up 1.2%, Core up 0.2%; Important. An indication of inflationary pressures at the producer level. Weaker figures may lead to lower rates.
  • Consumer Price Index; April 15; Consensus Estimate Up 0.7%, Core up 0.2%; Important. A measure of inflation at the consumer level. Weaker figures may lead to lower rates.
  • Industrial Production; April 15; Consensus Estimate Down 0.2%; Important. A measure of manufacturing sector strength. Weakness may lead to lower rates.
  • Capacity Utilization; April 15; Consensus Estimate 76%; Important. A figure above 85% is viewed as inflationary. Weakness may lead to lower rates.
  • U of Michigan Consumer Sentiment; April 15; Consensus Estimate 67.3;  Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.

RETAIL SALES   Retail sales data is the first indication of weakness or strength in consumer spending released each month. The Bureau of the Census of the US Department of Commerce provides information on how much the consumer spends on the purchase of goods. This data provides the consumption part of the gross domestic product. Retail sales data represents merchandise sold for cash or credit by retailers. Durable goods, such as autos, make up 35% of the figure. The balance consists of non-durables such as gasoline, restaurants, and general merchandise. 

There are several drawbacks to the report. The data covers purchases of goods only, not services. It is also not adjusted for inflation and is extremely volatile. Economists are concerned that the current economic uncertainty will continue to curtail consumer-spending habits. Consumers have generally been given credit for sustaining the economy even amid the economic turmoil.  

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 March 7, 2011…

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MARKET COMMENT   Mortgage bond prices fell last week pushing mortgage interest rates considerably higher. Turmoil in many of the oil producing countries continued to push oil prices higher. Weekly jobless claims came in significantly lower than expected which sent mortgage interest rates higher as stocks recovered. The employment report Friday was slightly better than expected, however bond prices did not suffer. Traders were relieved the data did not mirror weekly jobless claims and show a surge in job creation. 

Mortgage bonds ended the week worse by a 5/8 of a discount point. 

The foreign demand for the Treasury auctions will continue to factor into trading this week. Rates may improve if foreign central banks continue to support our debt auctions. However, the opposite is also true, weak demand will pressure rates higher. 

LOOKING AHEAD 

  • Consumer Credit; March 7; Consensus Estimate $5.5b; Low importance. A significantly large increase may lead to lower mortgage interest rates.
  • 3-year Treasury Note Auction; March 8; Important. $32 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
  • 10-year Treasury Note Auction; March 9; Important. $21 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
  • Weekly Jobless Claims; March 10; Consensus Estimate 375k; Important. An indication of employment. Higher claims may result in lower rates.
  • Trade Data; March 10; Consensus Estimate $41b; Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates.
  • 30-year Treasury Bond Auction; March 10; Important. $13 billion of bonds will be auctioned. Strong demand may lead to lower mortgage rates.
  • Retail Sales; March 11; Consensus Estimate Up 0.4%; Important. A measure of consumer demand. A smaller than expected increase may lead to lower mortgage rates.
    U of Michigan Consumer Sentiment; March 11; Consensus Estimate 76; Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.
  • Business Inventories; March 11; Consensus Estimate Up 0.7%; Low importance. An indication of stored-up capacity. A significantly larger increase may lead to lower rates.  

FUNDAMENTAL WEEK   The abundance of fundamental data this week provides a good opportunity for mortgages to improve. If the data shows weakness in the economy with little or no inflationary pressures then it is possible for mortgage bonds to rally resulting in mortgage interest rate decreases. However, if the data shows that the economy continues to rebound or any significant signs of inflation, mortgage bonds may fall pushing mortgage interest rates higher. 

Mortgage interest rates remain historically favorable despite some recent increases. Now is a great time to avoid the uncertainty surrounding continued market volatility. Remember, 6 months ago the majority of analysts thought rates would continue to fall. The future is uncertain with so much global economic instability. Escalating energy prices currently dominate headlines. We have been able to avoid any rate hikes typically associated with that but it is very possible for rates to spike higher in the short term. Caution is key! 

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 October 11, 2010…

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MARKET COMMENT   Mortgage bond prices ended the week considerably higher pushing mortgage interest rates lower. Rates improved throughout most of the week despite the fact stocks remained relatively higher. Factory orders, ADP employment, and the payrolls component of the employment report were all weaker than expected. The data showed that US economic recovery remains uncertain. 

Rates finished the week better by over a full discount point. 

The Treasury auctions this week will gain much of the focus. If foreign demand remains solid rates should remain low. The inflation data will also take center stage. Any indications of price increases on the consumer or producer sides could have negative repercussions for mortgage interest rates in the short term. 

LOOKING AHEAD 

  • 3-year Treasury Note Auction; Oct. 12; Important. $32 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
  • Fed Minutes; Oct. 12; Important. Details of the last Fed meeting will be thoroughly analyzed.
  • 10-year Treasury Note Auction; Oct. 13; Important. $21 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
  • Producer Price Index; Oct. 14; Consensus Estimate Up 0.3%, Core up 0.2%; Important. An indication of inflationary pressures at the producer level. Lower figures may lead to lower rates.
  • Trade Data; Oct. 14; Consensus Estimate $44b deficit; Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates.
  • 30-year Treasury Bond Auction; Oct. 14; Important. $13 billion of bonds will be auctioned. Strong demand may lead to lower mortgage rates.
  • Consumer Price Index; Oct. 15; Consensus Estimate Up 0.2%, Core up 0.1%; Important. A measure of inflation at the consumer level. Lower figures may lead to lower rates.
  • Retail Sales; Oct. 15; Consensus Estimate Up 0.4%; Important. A measure of consumer demand. A smaller than expected increase may lead to lower mortgage rates.
  • U of Michigan Consumer Sentiment; Oct. 15; Consensus Estimate 67; Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.

FED MINUTES   The Federal Open Market Committee decided in December of 2004 to reduce the lag time between the open market committee meeting and the release of the minutes from six to eight weeks to only three weeks. The minutes from the meeting have the ability to cause mortgage interest rate volatility because they provide more policy details than the standard post meeting release. Most importantly the minutes provide the Fed’s complete economic analysis and the various opinions of individual Fed members. There is typically an overwhelming consensus among the members. However, there can also be dissension, which often causes uneasiness in the financial markets. The release often comes and goes without much uproar but keep in mind that if any of the text seems troubling to analysts you can see market volatility. Remember that mortgage interest rates are historically favorable. Capitalizing on current levels is wise amid the continued global economic uncertainty. 

Source: Courtesy of Todd Kabel, US Bank, Nashville, Tennessee

Market Comment for Week of August 9, 2010…

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MARKET COMMENT   Mortgage bond prices were near unchanged last week holding rates in check. Stock strength the early part of the week caused bonds to struggle. Weaker than expected personal income, outlays, PCE Core, and factory orders data helped bonds bounce back a bit. Stocks extended their gains Wednesday once again at the expense of bonds. Higher than expected weekly jobless claims had investors jittery heading into the employment report. The jobs report released Friday confirmed fears that unemployment remains high in the US. 

Rates fell by about 1/8 of a discount point for the week. 

The most important event this week will be the Fed meeting Tuesday. The Treasury auctions may also move the markets. 

LOOKING AHEAD 

  • Preliminary Q2 Productivity; Aug. 10; Consensus Estimate 2.8%; Important. A measure of output per hour. Improvement may lead to lower mortgage rates.
  • 3-year Treasury Note Auction; Aug. 10; Consensus Estimate None; Important. $34 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
  • Fed Meeting Adjourns; Aug. 10; Consensus Estimate No changes; Important. Few expect the Fed to change rates, but some volatility may surround the adjournment of this meeting.
  • Trade Data; Aug. 11; Consensus Estimate -42.3B; Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates.
  • 10-year Treasury Note Auction; Aug. 11; Consensus Estimate None; Important. $24 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
  • 30-year Treasury Bond Auction; Aug. 12; Consensus Estimate None; Important. $16 billion of bonds will be auctioned. Strong demand may lead to lower mortgage rates.
  • Consumer Price Index; Aug. 13; Consensus Estimate Unchanged Core up 0.1%; Important. A measure of inflation at the consumer level. Lower figures may lead to lower rates.
  • Retail Sales; Aug. 13; Consensus Estimate Down 0.2%; Important. A measure of consumer demand. Weakness may lead to lower mortgage rates.
  • U of Michigan Consumer Sentiment; Aug. 13; Consensus Estimate 67.2; Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.
  • Business Inventories; Aug. 13; Consensus Estimate Up 0.1%; Low importance. An indication of stored-up capacity. A significantly large increase may lead to lower rates.

BOND PURCHASES   There was talk last week that the Fed may resume the purchases of mortgage-backed securities in order to try to boost the struggling US economy. Generally when there is more demand for a bond the price increases and rates fall. This could push mortgage interest rates even lower than their current historic levels. The Wall Street Journal reported that the Fed might make “a modest but symbolically important change” in how they manage their securities portfolios. Analysts indicate the Fed could use proceeds from maturing mortgage bonds to restart their MBS buying. We should hear some news regarding this following the Fed meeting this week. 

Source: Courtesy of Todd Kabel, US Bank, Nashville, Tennessee

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