A little improvement in the bond market this morning and MBS (Mortgage Backed Securities) prices are better. The recent trading in the MBS market has started stronger each day but has succumbed to selling as the days rolled on. So far today the pattern remains the same. The stock market so far has held well in the face of the weaker data and increase in weekly claims. As noted yesterday, the equity markets are currently in a win-win situation; weaker economic data keeps the Fed in play, stronger data fuels more positive economic outlooks. Meanwhile the swift spike in rates is providing an increasing view that the interest rate lows in the US and global bond markets have been achieved and the direction now is higher rates ahead. We have long said that the US bond market would find it extremely difficult to match the lows in rates seen last year and the low this year at 1.56% for the 10 yr note. Therefore mortgage rates should steadily go up, but so far today we have seen a slight improvement which is passed onto you, our ABBA First Mortgage client.
This Week; after a week with no economic releases, this week we have a number of measurements. Monday, April retail sales are expected to have declined, nothing scheduled on Tuesday, Wednesday and Thursday April PPI and CPI but inflation isn’t a problem and likely the two reports won’t jar the markets. April housing starts and permits are on Thursday, starts expected to have declined while permits expected to have increased. The May Philly Fed business index is thought to be slightly better, but the index is very close to neutral—not showing much improvement.
The interest rate markets continue to reflect the possible end to the 30 yr old bond market rally that started in 1983 with 30 yr mortgage rates at 17% and the 10 yr note at 18% (bank prime rate at 20%). The action in the rate markets that was triggered by the strong April employment report has not been able to achieve even a modest bounce after rocketing the 10 yr from an intraday low of 1.63% to 1.93% last Friday before ending the week at 1.89%. Mortgage rates up about 15 basis points in rates last week. Japan’s plan to weaken its currency is working against the US bond market; as the yen falls there is less demand for US bonds. Every technical indicator on the bond and mortgage markets is now solidly bearish; last Friday in a Tweet PIMCO co-CEO and bond king Bill Gross declared the end to the declining interest rate rally, even after a month ago Gross said he was increasing PIMCO’s investment in US notes and bonds. Most likely Gross was looking at the magnitude and speed in which rates rose last week.
Everything continues to point to lower interest rates; all technical indicators remain bullish. Rates have been declining, albeit slowly recently. Investors still in love with equities and until there is any significant pullback the slide lower in rates is likely to be slow.
For two weeks the bond and mortgage markets have been relatively unchanged, after the slight decline in rates from mid-March. Over the last two weeks there is no evidence rates will move much. During that time frame the stock market has declined, but no real push lower for rates. Equally investors are willing to hold some treasuries as a hedge against the potential of a sustained fall in stocks. We believe the Fed will continue its QE for most of the rest of the year, however Fed officials are talking about how to handle it when it is time for exiting. That they are openly talking has opened a lot of debate, but in the end most still believe the Fed isn’t close to winding down the QE. As long as the Fed continues to buy $85B a month in treasuries and MBSs and re-invest the pay downs from its large MBS holdings, interest rates are not likely to increase much on any selling. The key is 1.75% for the 10 year bond yield;, if it closes above it we would expect a move up a little more. Interest rates around the world are trending lower—-slowly.
In the last seven trading sessions, a week and a half, the 10 year bond has found strong support at yielding 1.70% and has equally found resistance at 1.75%. Five basis points and finding no momentum to crack 1.70% levels. During that time the DJIA has had swings from -266 on Monday and +157 yesterday. China’s economy is slowing, Europe’s economies faltering, the price of gold is falling and still investors and traders appear to be reluctant to move into treasuries. With weakening economic outlooks from increasing numbers of economists the Fed is not likely to begin lessening its monthly purchases of treasuries and mortgages anytime soon—at least until the end of the year; nevertheless interest rates are holding firm. Technically, everything remains positive but unless the 10 breaks 1.70% soon interest rates may increase.
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Interest rates are at ALL TIME lows and we offer some very flexible refinance programs to help put more money back in your pocket each and every month.
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Interest rate markets here and globally are declining as central banks pile huge sums of stimulus into economies. Japan’s 10 yr note about 0.50%; Germany’s 10 yr note 1.24% and here our 10 yr at 1.73%.
Obama administration pushes banks to make home loans to people with weaker credit.
By Zachary A. Goldfarb, Published: April 2
The Obama administration is engaged in a broad push to make more home loans available to people with weaker credit, an effort that officials say will help power the economic recovery but that skeptics say could open the door to the risky lending that caused the housing crash in the first place. President Obama’s economic advisers and outside experts say the nation’s much-celebrated housing rebound is leaving too many people behind, including young people looking to buy their first homes and individuals with credit records weakened by the recession.
In response, administration officials say they are working to get banks to lend to a wider range of borrowers by taking advantage of taxpayer-backed programs — including those offered by the Federal Housing Administration — that insure home loans against default. Housing officials are urging the Justice Department to provide assurances to banks, which have become increasingly cautious, that they will not face legal or financial recriminations if they make loans to riskier borrowers who meet government standards but later default. Officials are also encouraging lenders to use more subjective judgment in determining whether to offer a loan and are seeking to make it easier for people who owe more than their properties are worth to refinance at today’s low interest rates, among other steps.
Anyone else really excited for the warm weather? We are! Wilmington, NC really comes to life when things warm up. Its one of the biggest reasons why we are thankful to call Wilmington, NC HOME. How about you… what do you love about where you live?
The bond and mortgage markets have new life; technically speaking, there was resistance at a yield of 1.90% for the 10 year bond. This morning, trading and higher bond prices has broken this level. It is back to investors buying safety with the increasing troubles re-surfacing in the EU. The next resistance level for the 10 yr bond yield is at its 100 day average at 1.84% (at 10:00 this morning, the 10 is at 1.85%). After six months with no serious issues in the EU, the region is now back as a crucial driver for equity and bond markets—here and in Europe. It may be wise to monitor the rate market closely and lock in with any momentary pricing improvement that may become available, especially with the slow down in the stock market this morning adding to the momentary support for lower mortgage interest rates.