Mortgage backed securities (MBS) prices are lower (rates higher), after three positive days, ahead of the FOMC policy statement due at 1115am pt and before the Treasury auction of $37 billion of 5yr notes; FNMA 5.0% coupon 101.20bps, -13bps and the low of the session. Today's 5yr note auction is the largest sale of the security since 1953. It is rare for a government auction and FOMC statement to come out on the same day, but it is neccessary due to a busy calendar of auctions to help finance the massive stimulus program. Volatility has been the market response to every Fed policy decision since December 16; selling off in January when the Fed failed to announce a debt buying program, rallying in March after release of the buyback program, sold off again in April when additional measures were not forthcoming. Stock markets, however, have responded each time with feverish buying. The concern is the liquidity injections and unprecedented borrowing will cause inflation to accelerate, endangering the prospects for a recovery. The Fed will probably reassure investors they can keep interest rates at record lows without igniting inflation, stressing the increasing slack in the economy will contain consumer prices into next year. The Fed is scheduled to purchase long term securities tomorrow and will announce next two weeks schedule of debt buybacks at noon pt today. The Mortgage Bankers Association weekly survey shows purchase applications jumped 7%, a solid improvement but from a depressed level. Refinance applications also rose 6% with activity tied to a turn back down for mortgage rates. Durable Goods Orders unexpectedly jumped 1.8% in May showing broad based strength, well above the market consensus of a 0.5% gain. The rebound in new orders was widespread, led by machinery and transportation. Excluding the transportation component, new orders posted a 1.1% rise. Year over year new orders for durable goods are down 23.3%. The gains will take time to impact production, but adds to the argument that the recession is near bottom. New Home Sales unexpectedly fell 0.6% in May to an annual pace of 342K from a revised lower 344K last month. Builder discounts failed to keep pace with the foreclosure driven slump in prices. The median sales price fell 3.4% from a year ago, but was up 4.2% from a month ago, to $221,600. Sales were down 33% from May 2008 and builders have 292K houses on the market, fewest since 2001, representing 10.2 months of supply at current pace.
Mortgage Market Commentary - 6/23/2009
Mortgage backed securities (MBS) prices opened lower this morning after yesterday's gains which were fueled by stock market losses (DOW -200pts & S&P 500 -3.1%) boosting demand for fixed income assets, like MBS. MBS prices have since rebounded; FNMA 5.0% coupon 101.309ps, +8bp, the high of the day from an intra-day low of 101.13bps. Today the Treasury will auction $40 billion of 2yr notes, first of this week's three sales totalling a record $104 billion. The last auction drew the most demand since November 2006 from foreign central banks, helping ease concern that international investors will begin to shy away from Treasuries as U.S. borrowing surges to fund bank bailouts, fiscal stimulus spending and a record budget deficit. The budget deficit is projected to increase to $1.85 trillion this year, equivalent to 13% of the nation's economy. The Fed starts a two day meeting today to consider any changes to its pledge to buy Treasuries, agency debt and MBS to lower consumer borrowing costs, and whether to keep its benchmark interest rate near zero. Fed policy makers will continue to explore how and when to wean the economy off stimulative medicine to avoid fanning inflation. The FOMC statement is due at 1115am pt tomorrow. Fed funds futures show a 40% chance the Fed will raise interest rates by at least .25bps by December. The Fed purchased $7.5 billion of U.S. debt yesterday as part of its effort to stop rates from rising. Chain store sales continue to be very weak, according to ICSC-Goldman & Redbook, due to recessionary conditions and wet weather. Crude oil prices increased after falling three days in a row as a weaker dollar boosted the appeal of commodities as an alternative investment. The dollar declined on speculation that the Fed will temper expectations for an interest rate increase. Existing Home Sales were up 2.4% in May to an annual rate of 4.77 million, but below expectations of 4.85 million. Supply is coming down slowing, at 9.6 months from 10.1 months in April. Prices firmed up 3.8% to a median sales price of $173,000, but are down 16.8% on an annual basis. There was a steep drop in the proportion of distressed sales, to about one third from nearly half in prior months. More importantly, unrealistically low appraisals are scuttling sales and slowing the housing recovery. Can you say HVCC!
Mortgage Market Commentary - 6/22/2009
Mortgage backed securities (MBS) prices are higher (rates lower) after the World Bank cut its forecast for global economic growth this year, causing stocks and commodities to retreat, benefiting fixed income assets like MBS; FNMA 5.0% coupon 101.20bps, +25bps. The 30yr fixed FNMA required net yield (60 day) is now at 5.24%, from 5.34% on Friday. The DOW is down 100pts. The dollar is stronger dulling the appeal of commodities as an alternative investment, with crude oil falling to $67.81 a barrel on concern that fuel consumption will remain depressed and copper prices falling to 3 week low. No economic data will be released today. The Fed will purchase Treasuries today, part of the plan to lower borrowing costs and revive the economy. The Treasury will auction $40 billion in 2yr notes tomorrow, $37 billion of 5yr notes on Wednesday and $27 billion of 7yr notes on Thursday with the total $3 billion more than the last sale and the most since February. Investors are focused on the upcoming FOMC meeting that begins tomorrow, looking for possible news on changes in Fed's view on the economy, to acknowledge the economy has improved since their last gathering and to reassure that interest rates will stay low for the near term. There is a risk that higher rates will hold back the budding economic recovery by lifting borrowing costs for homeowners and buyers. Volatility will continue in MBS markets as supply concerns weigh heavy on traders minds.
Weekly Report For June 22nd 26th
Even with no economic data released on Monday, this week will a busy one with large Treasury auctions June 23-25 and the FOMC meeting that begins Tuesday and concludes Wednesday with a policy statement due out at 1115am pt. The Fed may acknowledge the economy has improved since their last gathering, while reassuring investors that interest rates will stay low for the foreseeable future, preventing borrowing costs from climbing and undermining tentative signs of recovery. The Fed statement will likely have a significant impact on MBS markets. On Tuesday Existing Home Sales will be released and New Home Sales are due on Wednesday, giving traders a glimpse of the current housing market. Also on Wednesday is information on mortgage applications from the Mortgage Bankers Association and Durable Goods Orders, an important indicator of economic activity. Wednesday shapes up as the important day of the week, with a 5yr note auction and the FOMC policy statement. Thursday brings Gross Domestic Product (GDP) final revision figures and Jobless Claims too. The week ends with Personal Income/Spending numbers, Personal Consumption Expenditure (PCE) and Consumer Sentiment all set for Friday.
Mortgage Market Commentary - 6/19/2009
Mortgage backed securities (MBS) prices are lower (rates higher) in quiet sideways trading, typical for a Friday in June, as stock markets are higher and there are no economic reports due out today; FNMA 5.0% coupon 100.52bps, -9bps. MBS prices opened higher, reaching 100.67bps, only to fall back into negative territory, falling to an intra-day low of 100.34bps. Market participants are concerned over the looming supply of Treasuries ($104 billion), driving investors out of fixed income assets, like MBS, into more riskier investments seeking higher yields. Traders will begin to focus on the upcoming FOMC meeting June 23-24, with emphasis on the policy statement, hoping to gleen whether The Fed intends to raise interest rates soon because the recession is coming to an end. Coinciding with the FOMC meeting on June 23 will be the Treasury's auction of $40 billion in 2yr notes, $37 billion of 5yr debt and $27 billion of 7yr securities from June 23-25. The demand from foreign investors will be closely watched, as they are crucial for continuing the administration's record budget deficits. Gold prices have declined amid signs of recovery, after investors bought the metal to protect against plunging equities and a deepening recession, and are buying other assets such as real estate, reversing flight to quality trades. Crude oil prices rose for the third day on speculation that fuel consumption will climb as the global economic downturn subsides. Today is quadruple witching day and a Friday, so volatility is probable this afternoon.
Mortgage Market Commentary - 6/18/2009
Mortgage backed securities (MBS) prices opened sharply lower amid concern the administration's record borrowing will overwhelm demand as the recession shows signs of easing. MBS prices rebounded only to fall back after release of today's economic reports; FNMA 5.0% coupon 101.16bps, -32bps. Investors await Treasury's announcement later today the amount of 2yr, 5yr & 7yr notes it will auction next week. The administration projects a record $1.85 trillion budget deficit this year and pushed the marketable debt to an unprecedented $6.45 trillion, while relying on foreign central banks to finance the massive debt. Treasury Secretary Geithner is testifying today before the Senate Banking Committee on financial industry regulatory reform. Market participants will be listening intently. Intial jobless claims rose 3K to 608K from a revised higher 605K the prior week, while the 4-week moving average fell 7K to 615,750 and the lowest level since February. The total number receiving unemployment benefits plunged 148K to 6.687 million, ending a long streak of increases. The data indicates the economy is stabilizing, though companies are likely slow to hire new employees. Leading Economic Indicators jumped 1.2% in May, pointing to economic leveling followed by a mild recovery. May's gains were led by a slowing in delivery times, though tighter delivery conditions may not be from rising demand for goods as much as capacity cutbacks. The second biggest positive for the index is the steepening yield curve, reflecting the risk of Fed rate hikes. The Philadelphia Fed's business activity index showed improvement from prior levels with a reading of -2.2, from -22.6 and below a consensus of -15.0, pointing to steady conditions in the near future. Contraction in new orders slowed substantially, but the good news is the general business conditions index rose more than 10pts. Employment is certain to lag as manufacturers hold off on new hirings until six months down the road. All in all, this mornings data will increase talk that government stimulus, whether fiscal or monetary, may have to be withdrawn sooner than later.
Mortgage Market Commentary - 6/17/2009
Mortgage backed securities (MBS) prices continue to climb higher (rates lower), extending the rally for a fifth day, after a Labor Department report showed consumer prices rose less than forecast, easing concern inflation will accelerate; FNMA 5.0% coupon 101.86bps, +33bps. Consumer Price Index (CPI), the broadest monthly price gauge because it includes goods and services, increased 0.1% in May despite higher energy costs. The boost in energy costs was due to a 3.1% gain in gasoline prices, though partly offset by declines in natural gas. Higher energy prices restrain discretionary spending, preventing companies from passing increased costs on to customers. The "core" rate, excluding food and fuel, climbed 0.1%. The core index benefited from subdued rental prices, 40% of the total, and falling prices for public transportation, apparel and tobacco. The outlook among traders for consumer prices is 1.78% and down from a 2.23% 5yr average, reflected by the difference between the 10yr note and Treasury Inflation Protected Securities (TIPS). Mortgage applications fell to the lowest level since November, reflecting the dampening effect of rising interest rates and limited credit availability. Purchase applications fell a disappointing 3.5% last week, combined with indications of limited buying interest point to dismal home sales data at months end. The refinance index fell sharply, down 23%, with mortgage rates up about 75bps from a month ago. The jump in borrowing costs discourage homeowners from refinancing and may deepen the housing slump. The Fed is scheduled to purchase 7-10yr securities today, part of its $300 billion buyback program, after buying $6.45 billion of 3yr notes yesterday.
Mortgage Market Commentary - 6/16/2009
mortgage backed securities (MBS) prices opened lower (rates higher) as Russia, India and China consider buying each other's bonds, swapping currencies to lessen dependence on the dollar and shifting reserves out of Treasuries. After release of a wide range of economic data, MBS prices have rebounded to trade near unchanged; FNMA 5.0% coupon 101.14bps, -6bps from being down 22bps earlier. The three month LIBOR fell to a record low 0.61% yesterday. Speculation that the Fed will raise interest rates this year, if the economy is recovering, is fading as quickly as it surged the past two weeks. The yield spread, difference between 2yr & 10yr debt, has narrowed to 249bps as investors become less concerned inflation will increase. U.S. Producer Prices rose 0.2% in May, sharply falling short of expectations, as food expenses dropped. A 2.9% increase in fuel led to the jump in wholesale prices and these costs may rise further in June. Core prices, excluding food and fuel, unexpectedly fell 0.1% in May, the first decrease since October 2006. Overall PPI fell 4.7% on a year over year basis, the biggest decrease since 1949, reflecting the drop in fuel prices late last year that has since partially reversed. The bottom line is that inflation currently is moderate. Energy prices are still a looming problem, but just not today. U.S. Housing Starts soared up 17.2% in May, showing surprising strength, to an annual rate of 532K units that followed a 454K pace the prior month. The May rebound was led by the multi-family component which posted a 61.7% gain after falling 49.4% in April. Good news is the sizeable rise in the single-family component, up 7.5% after a 3.3% rise the month before. Building permits, an indicator of future construction, rose 4% to a 518K pace from a 498K rate the previous month. However, building permits are down 47% from a year earler. Industrial Production fell 1.1% in May, reflecting declines in consumer goods and business equipment that signals the manufacturing slump remains broad based. A large source of weakness was in motor vehicles and parts which plunged 7.9%. Factory production, 80% of total production, was down 15% in the last year, the biggest 12-month drop since 1946. Manufacturing is still contracting, maintaining a moderate decline. Overall capacity utilization fell to a record low 68.3% in May from 69.0% in April. As orders have tumbled, companies have slashed production to lower inventories. The excess capacity will help control inflation as raw material costs keep rising. According to ICSC-Goldman and Redbook, weekly chain store sales show extreme weakness and that June is shaping up to be a big disappointment for non-gasoline retailers.
Todays Mortgage Market Commentary - 6/15/2009
Mortgage backed securities (MBS) prices continue to rally higher (rates lower) as weakness in the stock market (DOW down 150pts) is lifting MBS markets as money flows out of equities and into fixed income assets; FNMA 5.0% coupon 101.20bps, +59bps and the high of the session. FNMA 4.5% coupon 98.98bps, +78bps. Market participants note the price rally may continue this week as MBS are likely to benefit from a brief respite in government supply and the Fed's two scheduled purchases of Treasuries. There is a lull in the Treasury auction schedule until they resume with 2yr, 5yr & 7yr notes on June 23-25. MBS may also garner support from traders who base their strategies on technical analysis of charts and historical data. The 14 day stochastic oscillator, which measures the closing price of a security relative to its highs and lows during a particular period, indicates prices are poised to halt their recent declines. The Empire State general business conditions index fell to minus 9.4 from a minus 4.6 last month as sales and inventories declined, showing the economy is still months away from a sustained recovery. The outlook for the next six months climbed to the highest level in almost two years as the drawdown in goods on hand clears the way for factories to ramp up output. Regional and national purchasing manager surveys have shown a declining rate of contraction in recent months, but actual improvement will not be evident until current new orders pick up and destocking comes to an end. International holdings of long term U.S. financial assets, a safe haven for foreign investors during the global financial crisis, rose a net $11.2 billion compared to $55.4 billion in March. Foreigners were net buyers of equities, but turned sellers of U.S. coporate bonds and agency debt. The key topic among Foreign invetors remains the U.S. commitment to a strong dollar.
Weekly Report For June 15th - 19th
This week provides investors information on the housing market and manufacturing, but the most significant economic data released will be the monthly inflation reports. The week begins with the Empire State manufacturing index, a survey of factory executives from New York, New Jersey and one county in Connecticut and the earliest measure of regional manufacturing. Also Monday, the Treasury International Capital report details long term investment inflows from foreign investors. Tuesday the Producer Price Index (PPI) comes out, which focuses on the increase in prices for goods used to produce finished products. Housing starts and building permits provide a view of the housing market and construction industry, both expected to be awful. Rounding out a busy Tuesday is Industrial Production and Capacity Utilization figures. Consumer Price Index (CPI) is the most closely watched inflation report and will come out on Wednesday. The CPI looks at the price change for finished goods sold to consumers, while the core rate excludes volatile food and energy prices. Information on mortgage applications from the Mortgage Bankers Association is due out also on Wednesday. Thursday we get Jobless Claims, Leading Economic Indicators and the Philadelphia Fed Index, all important barometers of the economy, but ultimately the Treasury's announcement of the size of their next round of debt offerings will be the primary focus of the day. Friday there are no economic reports due out but it is "Quadruple Witching" day, when all cash and futures contracts expire along with the indexes themselves. Tendency is for an extremely volatile day in the equity markets.
Mortgage Market Commentary - 6/12/2009
Mortgage backed securities (MBS) prices are sharply higher in active trading as demand at yesterday's 30yr bond auction helped ease concern that international investors will slow purchases amid record U.S. debt sales and after release of this morning's economic reports; FNMA 5.0% coupon 100.45bps, +28bps. Indirect bidders, an investor class that includes foreign central banks, bought 49% of the bonds on offer yesterday, the biggest percentage since 2006. Japanese Finance Minister said his contry's confidence in U.S. debt is unshakable. Japan is the second largest U.S. creditor with $687 billion behind China, with $768 billion. The next auctions of Treasuries are set for June 23-25, when 2yr, 5yr & 7yr notes will be sold. U.S. import prices rose 1.3% in May, for the third straight month and the largest increase since July last year, reflecting the increasing cost of oil that threatens to undermine the economic recovery. Prices of imported goods, compared with a year earlier, dropped 17.6%, the biggest decrease since 1982. Prices excluding fuels climbed 0.2% to end a long string of declines, while being down by 5.85% on an annual basis. There are early hints of inflation pressure as commodity prices have been on the rise. The Consumer Sentiment index edged higher 0.3 to 69.0, showing little improvement and some concerns over inflation. The expectations component, which has been driving measurements sharply higher for the last two months, actually fell 4pts, the first decline since February. Inflation expectations rose, which typically appears when coming out of recessions, certainly reflecting higher prices at the gas pump. Crude oil fell from $72.68 a barrel, a 7 month high, to $71.27 a barrel after a record plunge in European industrial production prompted speculation that bets on an economic recovery are premature.
Mortgage Market Commentary - 6/11/2009
Mortgage backed securities (MBS) prices opened lower, but have since turned positive after release of economic data that was at best luke warm; FNMA 5.0% coupon 99.72bps, +16bps and the high of the session after hitting an intra-day low of 99.36bps. The 30yr fixed FNMA required net yield (60 day) is now 5.59%, up from 4.91% on June 1st. The DOW is up 100pts in early activity. Traders continue to believe that long term interest rates are headed higher on concern surging budget deficits and a falling dollar will prompt investors to reduce holdings of U.S. fixed income assets, like MBS. Crude oil prices climbed over $72 a barrel today with increased global consumption outlook amid signs the recession is bottoming out. Retail sales rebounded moderately in May, up 0.5%, first time in three months with the gain related to higher gasoline prices and shoppers seeking bargains from ailing automakers. Retail sales on a year ago basis in May were down 9.6% and show little sign of an underlying rebound in spending. Jobless claims fell 24K to 601K, fewer than forecast and the lowest level since January, from a revised higher 625K the prior week as businesses are slowing staff reductions. The improvement is clearly evident in the 4 week moving average, a less volatile measure, which fell to 621,750 from 632,250; its lowest level since February confirming global expectations that U.S. payroll contraction has peaked. Business inventories fell 1.1% in April following a 1.3% decline in March indicating that businesses were not anticipating better conditions, however May appears to have a much less weak month so watch for a pivot in inventory data as retail sales increase. According to the RBC CASH (Consumer Attitudes and Spending by Household) Index consumers economic enthusiasm faded this month as the jobless rate reached a 26 year high, gas prices climbed daily and the intial fervor for the government's economic remedies waned, even though consumer expectations continue to show improvement. Despite current financial woes increasing numbers are starting to believe the worst is behind them. 1 million option ARMs will reset higher in the next four years, with 750,000 adjusting in 2010 and 2011 and the peak coming August 2011 when 54,000 loans recast. The deliquency rate for payment option ARMs originated in 2006 is soaring to 42.44% from 23.26% in the last year. For 2007 loans, the rate went from 10.1% to 35.25% on loans 60 days or more past due. U.S. foreclosure filings reached 321, 480 properties last month, up 18% from a year earlier. One in 400 U.S. households received a filing last montn.
Mortgage Market Commentary - 6/10/2009
Mortgage backed securities (MBS) prices opened sharply lower as demand for better yielding assets increases amid rising confidence in the global economy; FNMA 5.0% July coupon 99.77bps, -31bps and the low of the session. The monthly rollover took place overnight for FNMA securities switching the current coupon from June to July. July's price reflects a drop of about 34bps from June and is priced in over the course of the month. The 30yr fixed FNMA required net yield (60 day) is 5.48%, up from 5.44% yesterday. The government will sell $19 billion of 10yr notes today after demand was stronger than average, 2.82 bid to cover ratio, at yesterday's 3yr note auction. Foreign investors purchased 44% of the total as the government relies on them more to sustain record borrowing. The budget deficit is projected to increase to $1.85 trillion for the year, equivalent to 13% of the nation's economy. Crude oil prices rose above $71 a barrel for the first time in seven months on stockpiles dropping and speculation the dollar will extend its decline as investors turn from fixed income assets, like MBS, to other assets classes including commodities seeking an inflation hedge. The dollar fell on speculation central banks around the world may try to diversify their reserves away from the U.S. currency. The average 30yr fixed mortgage surged 32bps last week to 5.57%, the highest since November, offsetting low home prices and buyer incentives to push mortgage applications to the lowest level since February, threatening to deepen the housing slump and sideline prospective home buyers. According to the Mortgage Bankers Association's weekly survey the purchase index gained 1.1% while the refinancing gauge fell 12% as the jump in borrowing costs discourage refinancing. The U.S. trade deficit widened in April as exports dropped 2.3%, the lowest level in three years as worldwide demand contracted further. The drop in exports reflected reduced demand for engines, machinery and metals. Exports to Japan plunged to the lowest level since 1994. Imports decreased 1.4%, led by declines in fuel, drilling equipment, computer accessories and toys. On a positive note, a higher level for imported consumer goods suggests that businesses believe that the consumer sector will be rebounding in the coming months. At 11am pt the Fed releases the Beige Book, the report on economic conditions used at the upcoming FOMC meeting, and its impact on MBS markets can be dramatic. Also at 11am pt, the Treasury releases the monthly budget report for May, an account of the surplus or deficit of the government. May typically shows a moderate deficit, however April posted a record $20.9 billion deficit when surpluses existed for 25 years.
Mortgage Market Commentary - 6/9/2009
Mortgage backed securities (MBS) prices opened strong and have continued to trade higher (rates lower) as investors believe yields may have peaked, citing technical analysis showing the increase losing momentum, which may spur demand at this week's Treasury auctions; FNMA 5.0% coupon 100.56bps, +36bps and the high of the session. We have switched the current coupon from 4.5% to 5.0% to better reflect market conditions. Today's Treasury auction of $35 billion in 3yr notes will be closely watched for the level of demand as investors bid for 2.66 times the amount offered last month and has averaged 2.49 times for the last seven sales. Treasury Secretary Geithner speaks twice today, first in front of a Senate subcommittee on financial services, then holds a briefing ahead of G-8 finance ministers meeting. Chain store sales according to ICSC-Goldman were down 0.8% , the lowest reading since early May, while Redbook reports a plunge of 4.3% citing cooler weather and the prior months stimulus check burst of spending fading. Wholesale inventories fell a steep 1.4% in April, as distibutors tried to cut excess supply to better reflect decreasing sales. Today's figure was larger than expected and follows a revised lower 1.8% decrease in March and indicates that firms are still in deep drawdown mode, but given the prospect of economic recovery, should help to boost future production and employment as firms restock to meet demand. Risk premiums have fallen as investors continue to search for higher yields; risk premiums on "junk" bonds have fallen to their lowest level since September 26 with the spread over comparable Treasurys at 10.7% compared to a high over 20%.
Mortgage Market Commentary - June 8th 2009
Mortgage backed securities (MBS) prices are lower (rates higher), after opening positive +13bps, as the Fed prepares to purchase Treasuries today and also on June 10, part of its plan to cap consumer borrowing costs; FNMA 4.5% coupon 98.09bps, -8bps and the low of the session. Last week the coupon lost 269bps. The 30yr fixed FNMA required net yield (60 day) is now 5.35%, the highest level since Nov 25. 30yr fixed mortgage rates jumped to 5.45%, from a low of 4.85% in April, and costs for homebuyers are now higher than in December. Higher rates may deepen the housing slump and sideline consumers planning to refinance or but their first home. The 10yr note yield rose to 3.90% last week, from a low of 2.15% on January 15, and the 37bps surge equaled the most since July 2003. The spread between 10yr note yields and 30yr fixed rate mortgages has shrunk from 337bps in December to 177bps now. The combination of an improved economic outlook, rising budget deficits and an 11% drop in the dollar over the last 3 months are potentially inflationary and the catalyst for higher rates. A burst of inflation could sap demand just as the economy is starting to right itself after the biggest contraction in 5 decades. Gasoline prices are up $.54 since May 1, which removes over $70 billion from consumers annual spending borrower. The DOW is down over 100pts, but fixed income assets are not benefiting. No economic data will be released today.
Weekly Report For June 9th - 11th
This week is light on economic reports, as investors will be focused on the large Treasury auctions June 9-11, particularly the longer term 10yr and 30yr offerings Wednesday and Thursday. With recent economic data generally favorable, investors believe the Fed will not increase it's purchases of MBS or Treasuries, so the level of demand for the new bonds will be closely watched. The most significant economic data will be the Retail Sales (which account for 70% of economic activity) report released on Thursday, along with Jobless Claims and Business Inventories. There are no economic reports due Monday, but Tuesday brings Wholesale Trade and data on chain store sales from ICSC-Goldman & Redbook. Wednesday is the day for the Mortgage Bankers Association's weekly survey of mortgage applications which provides information on purchase activity and refinance demand. The Trade Balance figures are also due out on Wednesday along with the Fed's Beige Book. The week ends Friday with important inflation data on Import and Export Prices and a gauge of Consumer Sentiment. 30yr fixed mortage rates jumped last week to 5.45%, from a low of 4.85% in April; which may sideline consumers planning to refinance or purchase their first home. Costs are now higher for homebuyers than they were in December.
Weekly Report For June 1st - 5th
Monday's release of the ISM Manufacturing Index begins a busy week for economic numbers, which culminates with Friday's May employment report. A sputtering ISM report could start to shift market talk away from green shoots, but a number above 41.2 would signal the economy is no longer contracting. Other reports due out Monday are Personal Income & Construction Spending. Tuesday will see the release of two weekly chain store sales surveys and a look at motor vehicle sales. Pending Home Sales Index, an important indicator for the real estate market, is also slated for Tuesday. Wednesday begins with the Mortgage Bankers Association's weekly survey of mortgage applications for purchases and refinances. The Challenger Job-Cut & ADP Employment report provide a glimpse at the labor market ahead of Friday's more comprehensive report. Still on Wednesday, Factory Orders and the ISM Service Index will offer fodder for the markets brewing debate about just how hot the economy is running. Thursday will be comparatively light with Jobless Claims and Productivity due out early and the Treasury's announcement of the size in 3 & 10yr notes and 30yr bonds to be auctioned the following week. Friday is the most important day this week with release of only one report, the Employment Situation, which provides information on non-farm payrolls, unemployment rate and labor costs. Given the wide range of information this week that could sway the market in either direction, continued volatility in the MBS market is expected.
Mortgage Market Commentary - Month of June 2009
The month of June opens strong with a slew of new data that will offer fodder for the debate about just how hot the economy is running with release of the ISM Manufacturing Index. A sputtering ISM could start to shift market talk away from green shoots to double dips, while a reading over 41.2 would cross the threshold associated with a shrinking economy and could lead to calls the recession is over. The most important day of the first week is Friday when the Labor Department releases the Employment Situation report, providing information on non-farm payrolls, unemployment rate and labor costs. Also significant is the Treasurys announcement of the size of 3 &10yr notes and 30yr bonds to be auctioned the following week. The second week of June has a light schedule for economic reports with the Thursday June 11 release of May Retail Sales a potential market moving number. Demand for the 3, 10 & 30yr auctions June 9-11 will be watched closely to gauge international (China) appetite for additional U.S. debt. Inflation figures will dominate the week of June 15-19, with Producer Prices set for Tuesday and Consumer Prices due out Wednesday. For a little spice, Industrial Production will come out also on Tuesday. Thursday there will a tandem of reports, Leading Economic Indicators & Philadelphia Fed Index. There are no reports scheduled for Monday or Friday. Durable goods orders is the major economic report for the third week of June, set for release Tuesday June 23. Data on the housing market will provided by Existing Home Sales figures on Tuesday and New Home Sales numbers on Wednesday June 24. No economic reports are due out either Monday or Thursday, but Friday June 26 investors will review information on Personal Income/Spending & Consumer Sentiment. The month ends quietly with no economic reports due out for either Monday the 29th or Friday the 30th. Look for continued volatility in the MBS markets.
Weekly Report For May 25th - 29th
With a holiday shortened week, economic news will be compacted into four days instead of five. The Fed wil purchase government securities on Tuesday and Wednesday, part of its program to lower consumer borrowing costs. The Treasury will auction $40 billion of 2yr notes on Tuesday, $35 billion of 5yr notes on Wednesday and $26 billion of 7yr notes on Thursday, part of a record debt sale to pay for a mounting budget deficit. Case/Shiller Home Price Index and Consumer Confidence reports come out on Tuesday. On Wednesday information on mortgage applications is provided by the Mortgage Bankers Association's (MBA) weekly survey. Chain store sales data from ICSC-Goldman & Redbook will be released on Wednesday along with Existing Home Sales. New Home Sales figures are due out on Thursday. Also on Thursday, Jobless Claims and Durable Goods Orders, an important indicator of economic activity, are scheduled for release. After the market closes on Thursday, Fed President Fisher will be speaking. Rounding out the short week, the first revision to Gross Domestic Product (GDP) comes out on Friday. As a compliment, the Chicago Purchasing Managers Index (PMI) and Consumer Confidence reports will also be released on Friday.
Weekly Report For May 18th - 22nd
It will be a light week for economic data, with Thursday looming as the critical day. On Monday the National Association of Home Builders (NAHB) releases its Housing Market Index based on a survey which rates the general economy and housing market conditions. Builders pessimism is forecast to diminish slightly. Housing Starts will come out on Tuesday likely showing homebuilders keeping starts low as the supply of existing homes on the market is bloated with recent foreclosures. Wednesday brings da
