Markets Wait for Fed Statement
Mortgage backed securities continue their trend higher in price yesterday making for two positive days in a row. Yesterday’s action was much more up and down compared to Monday’s trading and volume of trades increased. During a brief downward move to the price of MBS, a few lenders did reprice for the worse but as MBS rebounded those lenders quickly gave back what they took away. It appears the main reason for MBS gaining over the last couple days is weakness in the stock market. Market participants appear to be second guessing whether the recent run up in the stock market is justified. This shift in sentiment is pulling money out of the stock market and flowing into the fixed income market including MBS and Treasuries. The benchmark 10 year note has moved from a yield last week of 3.85 to close yesterday at 3.68! To remind readers, price and yield of MBS and treasuries are inversely related meaning as the price moves higher, the yield(mortgage rate) moves lower and vice versa.
Today is Fed day as such market participants will not want to take a position ahead of the statement which will be released at 2:15est. This will probably result in very slow trading action pre statement followed by volatility. Every 8 weeks the Federal Open Market Committee (FOMC) gathers to hold their monetary policy meeting. At these meetings they set the Fed fund rate which is currently at a range from 0% to .25%, they give an outlook on the economy and they announce any changes to existing programs or any new programs such as the MBS purchase program that was announced late last year. It is highly expected that the Fed will maintain status quo on the fed fund rate and the MBS purchase program. It is quite possible that they announce an end to the treasury purchase program where they stated they would purchase up to $300billion in treasury notes. The outlook they provide on the economy will be scrutinized by market participants for any clues as to future monetary policy and/or changes with existing programs.
We do have some data this hitting the wires this morning. The Mortgage Bankers’ Association released their weekly applications index which tracks the weekly change in the number of mortgage applications at major lenders. They break the report into 2 categories, purchase applications and refinance applications. The report shows that the purchase applications index increased 1.1% making for the third straight small gain in a row. The refinance activity declined from last week by 7.2% probably due to the recent uptick in mortgage rates. No reaction from the markets following the release.
At 1pm eastern, the U.S. Department of Treasury will auction $23billion in 10 year notes. Since the average life of a mortgage is much closer to 10 years than 3 years, today’s auction will carry more weight than yesterdays offering of $37billion of 3 year notes which saw record demand from indirect bids. To determine whether an auction is successful or not, you generally look at two factors, the bid to cover and the indirect bid. The bid to cover is a ratio of how many people bid for each note. The higher the bid to cover the better. The indirect bid is the ratio of how much of the offering was purchased by foreign investors. Yesterday’s 3yr auction had a indirect bid of 62% meaning that of the $37billion offered for sale, foreign investors were awarded $23billion. With the fed statement coming an hour after the auction, it will be interesting to see if the demand for US debt is strong. Weak demand will apply pressure on the fixed income sector to move lower in price which could result in higher mortgage rates. The higher probability is for a muted reaction as the markets wait for the Fed statement but anything can happen especially if the results are extremely positive of negative.
Early reports from fellow mortgage professionals are indicating that mortgage rates continue to improve. The par 30 year conventional rate mortgage has fallen to the 5.125% to 5.375% range for the best qualified consumers. In order to secure a par interest rate you must pay all closing costs including one point loan origination/discount/broker fee, have a FICO credit score of 740 or higher and a loan to value at 80% or less. If you are looking for a 15 year fixed rate mortgage, expect the rate to fall into the 4.5% to 4.75% range.
We are seeing the best rate sheets this morning in over a week and a half. With the fed statement coming out later today, the market can turn rather quickly. Keep in mind, rates worsen much faster then they improve. With that said, you might want to consider locking this morning ahead of the statement to remove the risk of higher rates. If you have been floating your rate since last week, you have improved by .375% and now might be a good time to take the profits.
Today is Fed day as such market participants will not want to take a position ahead of the statement which will be released at 2:15est. This will probably result in very slow trading action pre statement followed by volatility. Every 8 weeks the Federal Open Market Committee (FOMC) gathers to hold their monetary policy meeting. At these meetings they set the Fed fund rate which is currently at a range from 0% to .25%, they give an outlook on the economy and they announce any changes to existing programs or any new programs such as the MBS purchase program that was announced late last year. It is highly expected that the Fed will maintain status quo on the fed fund rate and the MBS purchase program. It is quite possible that they announce an end to the treasury purchase program where they stated they would purchase up to $300billion in treasury notes. The outlook they provide on the economy will be scrutinized by market participants for any clues as to future monetary policy and/or changes with existing programs.
We do have some data this hitting the wires this morning. The Mortgage Bankers’ Association released their weekly applications index which tracks the weekly change in the number of mortgage applications at major lenders. They break the report into 2 categories, purchase applications and refinance applications. The report shows that the purchase applications index increased 1.1% making for the third straight small gain in a row. The refinance activity declined from last week by 7.2% probably due to the recent uptick in mortgage rates. No reaction from the markets following the release.
At 1pm eastern, the U.S. Department of Treasury will auction $23billion in 10 year notes. Since the average life of a mortgage is much closer to 10 years than 3 years, today’s auction will carry more weight than yesterdays offering of $37billion of 3 year notes which saw record demand from indirect bids. To determine whether an auction is successful or not, you generally look at two factors, the bid to cover and the indirect bid. The bid to cover is a ratio of how many people bid for each note. The higher the bid to cover the better. The indirect bid is the ratio of how much of the offering was purchased by foreign investors. Yesterday’s 3yr auction had a indirect bid of 62% meaning that of the $37billion offered for sale, foreign investors were awarded $23billion. With the fed statement coming an hour after the auction, it will be interesting to see if the demand for US debt is strong. Weak demand will apply pressure on the fixed income sector to move lower in price which could result in higher mortgage rates. The higher probability is for a muted reaction as the markets wait for the Fed statement but anything can happen especially if the results are extremely positive of negative.
Early reports from fellow mortgage professionals are indicating that mortgage rates continue to improve. The par 30 year conventional rate mortgage has fallen to the 5.125% to 5.375% range for the best qualified consumers. In order to secure a par interest rate you must pay all closing costs including one point loan origination/discount/broker fee, have a FICO credit score of 740 or higher and a loan to value at 80% or less. If you are looking for a 15 year fixed rate mortgage, expect the rate to fall into the 4.5% to 4.75% range.
We are seeing the best rate sheets this morning in over a week and a half. With the fed statement coming out later today, the market can turn rather quickly. Keep in mind, rates worsen much faster then they improve. With that said, you might want to consider locking this morning ahead of the statement to remove the risk of higher rates. If you have been floating your rate since last week, you have improved by .375% and now might be a good time to take the profits.
Total Comments 0
