Range Bound Rates Continue
Posted 08-20-2009 at 08:22 AM by VictorBurek
Mortgage rates held steady yesterday following an optimistic open. At the start of the day, MBS moved considerably higher as a result of the weakness in the global equity markets. Unfortunately that trend did not continue throughout the day and MBS closed slightly below opening levels. Lenders that issued rate sheets early in the morning(8am est) did issue reprices for the worse as MBS gave up a lot of ground by noon; however, they did manage to rally later in the day resulting in a few reprices for the better. All in all, mortgage rates held unchanged on the day.
Today is the busiest day of the week for economic data that can have an effect on investor sentiment. As a general rule, weaker than expected economic data is normally positive for low rates while better than expected data usually worsens rates. This is mainly due to the flow of investor money. Market participants move money into the stock market based on the belief of higher corporate profits which drives stock prices higher. If we get positive economic news that is an indicator of economic growth which leads to those profits. Bad economic news, results in the opposite. To avoid losses of declining stock prices due to lower corporate profits or possibly losses, market participants sell stocks and move their investment dollars into the relative safety of risk adverse assets such as MBS and treasuries.
First out this morning from the U.S. Department of Labor is the Weekly Jobless claims. This report totals the number of Americans that filed for first time unemployment insurance in the prior week. Also included in this report is continuing claims which totals the number of Americans that continue to file for benefits for lack of finding a job. There are two ways that continuing claims falls. One is that the filer finds a new job and the other is the benefits run out. We have seen some recent declines in continuing claims but it is mainly be attributed to loss of benefits rather than finding a new job. Recent reports have shown an easing in the number of initial claims which is positive news for the economy.
The release indicates that first time claims are worse than expected rising to 576,000 from a revised higher 561,000(was 558k) last week. The continuing claims also rose to 6.241million from a revised higher 3.239million in the prior week. The pace of job loss does seem to be easing but this report confirms that there is not a turn around with the labor market. Companies appear to still be in cost cutting mode as consumer spending is still depressed.
The next data to be released this morning is the Leading Indicators report which is a composite index of ten economic indicators that should lead to overall economic activity. This report indicates to market participants turning points with the economy. Leading indicators have risen three months in a row and economists surveyed are expected a flat reading this month of 0.7% matching last month. The report came in basically as expected with a 0.6% reading marking the fourth consecutive month in a row of a positive number providing evidence that the recession may be over.
The final report this morning comes from the Federal Reserve Bank of Philadelphia with the release of the Philly Fed index. This report gives market participants a read on the strength of business conditions around the Philadelphia region. Readings above 0 indicate expanding or improving conditions while readings below 0 indicate contracting conditions. Last month’s report fell back from a improved reading of -2.2 in June to -7.5 in July. Economists surveyed expect this month’s report to show improvement in conditions with a reading of -1.0. The report indicates that business conditions in the Philly region show signs of improvement beating estimates with a 4.2 reading marking the first expansion in about a year.
At 11am eastern, the U.S. Department of Treasury will announce the amount of treasuries to be auctioned next week. It is rumored to be the largest offering of debt in the history of mankind for a single week. They are expected to announce an offering of $43billion of 2 year notes, $40billion of 5 year notes and $28billion of 7 year notes. The added supply of debt on the market can pressure treasury prices to decline to attract buyers which can also move MBS prices lower. To remind readers, as MBS prices decline mortgage rates increase.
Early reports from fellow mortgage professionals are indicating that today’s par 30 year fixed rate mortgage remains in the 4.875% to 5.125% range for the best qualified consumers. In order to qualify for a par interest rate you must have a FICO credit score of 740 or higher, a loan to value of 80% or less and pay all closing costs including one point loan origination/discount/broker fee. As always, you can elect to pay less fees but your interest rate will move higher.
So far today, MBS are moving higher and are at the highest levels of the week. However, I will continue to caution you if you are floating your interest rate. The markets are very volatile as the bulls and bears fight over the economy. The bulls want to push the stock market higher on the belief that the economy is on the path to recovery which would cause mortgage rates to rise. The bears want to push the stock market lower on the belief of a long, slow, drawn out economic recovery which is better for lower mortgage rates. Recent history has shown that rates do not want to move lower than the upper 4% range which we currently sit. Learning from recent history shows us not to get too greedy hoping for rates to move even lower. Anytime you can lock a 30 year fixed rate mortgage under 5%, that is a hard thing to pass up.
Today is the busiest day of the week for economic data that can have an effect on investor sentiment. As a general rule, weaker than expected economic data is normally positive for low rates while better than expected data usually worsens rates. This is mainly due to the flow of investor money. Market participants move money into the stock market based on the belief of higher corporate profits which drives stock prices higher. If we get positive economic news that is an indicator of economic growth which leads to those profits. Bad economic news, results in the opposite. To avoid losses of declining stock prices due to lower corporate profits or possibly losses, market participants sell stocks and move their investment dollars into the relative safety of risk adverse assets such as MBS and treasuries.
First out this morning from the U.S. Department of Labor is the Weekly Jobless claims. This report totals the number of Americans that filed for first time unemployment insurance in the prior week. Also included in this report is continuing claims which totals the number of Americans that continue to file for benefits for lack of finding a job. There are two ways that continuing claims falls. One is that the filer finds a new job and the other is the benefits run out. We have seen some recent declines in continuing claims but it is mainly be attributed to loss of benefits rather than finding a new job. Recent reports have shown an easing in the number of initial claims which is positive news for the economy.
The release indicates that first time claims are worse than expected rising to 576,000 from a revised higher 561,000(was 558k) last week. The continuing claims also rose to 6.241million from a revised higher 3.239million in the prior week. The pace of job loss does seem to be easing but this report confirms that there is not a turn around with the labor market. Companies appear to still be in cost cutting mode as consumer spending is still depressed.
The next data to be released this morning is the Leading Indicators report which is a composite index of ten economic indicators that should lead to overall economic activity. This report indicates to market participants turning points with the economy. Leading indicators have risen three months in a row and economists surveyed are expected a flat reading this month of 0.7% matching last month. The report came in basically as expected with a 0.6% reading marking the fourth consecutive month in a row of a positive number providing evidence that the recession may be over.
The final report this morning comes from the Federal Reserve Bank of Philadelphia with the release of the Philly Fed index. This report gives market participants a read on the strength of business conditions around the Philadelphia region. Readings above 0 indicate expanding or improving conditions while readings below 0 indicate contracting conditions. Last month’s report fell back from a improved reading of -2.2 in June to -7.5 in July. Economists surveyed expect this month’s report to show improvement in conditions with a reading of -1.0. The report indicates that business conditions in the Philly region show signs of improvement beating estimates with a 4.2 reading marking the first expansion in about a year.
At 11am eastern, the U.S. Department of Treasury will announce the amount of treasuries to be auctioned next week. It is rumored to be the largest offering of debt in the history of mankind for a single week. They are expected to announce an offering of $43billion of 2 year notes, $40billion of 5 year notes and $28billion of 7 year notes. The added supply of debt on the market can pressure treasury prices to decline to attract buyers which can also move MBS prices lower. To remind readers, as MBS prices decline mortgage rates increase.
Early reports from fellow mortgage professionals are indicating that today’s par 30 year fixed rate mortgage remains in the 4.875% to 5.125% range for the best qualified consumers. In order to qualify for a par interest rate you must have a FICO credit score of 740 or higher, a loan to value of 80% or less and pay all closing costs including one point loan origination/discount/broker fee. As always, you can elect to pay less fees but your interest rate will move higher.
So far today, MBS are moving higher and are at the highest levels of the week. However, I will continue to caution you if you are floating your interest rate. The markets are very volatile as the bulls and bears fight over the economy. The bulls want to push the stock market higher on the belief that the economy is on the path to recovery which would cause mortgage rates to rise. The bears want to push the stock market lower on the belief of a long, slow, drawn out economic recovery which is better for lower mortgage rates. Recent history has shown that rates do not want to move lower than the upper 4% range which we currently sit. Learning from recent history shows us not to get too greedy hoping for rates to move even lower. Anytime you can lock a 30 year fixed rate mortgage under 5%, that is a hard thing to pass up.
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