Mortgage and Interest News
All Signs Point to Higher Rates in Week AheadNFP has come and gone, let's see where things stand.... The October delivery FNCL 4.0 is -0-09 at 102-15. In the chart below I called attention to a few technical inflection points. The ascending trend channel that helped mortgage rates hit new lows on Wednesday has broken down and FNCL 4.0s have made their way back into the range that moderated price action for the majority of August. The falling knife found support and bounced higher directly in the middle of that range. 10s flagged lower for the entire month of August (all summer really) and are now flagging higher. The 2.625% coupon bearing 10 year TSY note is off its session price lows (98-24) at 99-07 yielding 2.715% (+8.8bps). 10s are the worst spot on the curve followed by 7s (+8.6bps) and the long bond (+7.6bps). Volume was heavy into...(read more) 
Employment Situation Report: -54K Total Job Losses. Private Sector Adds 67k Positions. Bonds SellTHE EMPLOYMENT SITUATION – AUGUST 2010 – BETTER THAN EXPECTED From the Release... Nonfarm payroll employment changed little (-54,000) in August, and the unemployment rate was about unchanged at 9.6 percent, the U.S. Bureau of Labor Statistics reported today. Government employment fell, as 114,000 temporary workers hired for the decennial census completed their work. Private-sector payroll employment continued to trend up modestly (+67,000). The number of unemployed persons (14.9 million) and the unemployment rate (9.6 percent) were little changed in August. From May through August, the jobless rate remained in the range of 9.5 to 9.7 percent. The number of long-term unemployed (those jobless for 27 weeks and over) declined by 323,000 over the month to 6.2 million . In August, 42...(read more) 
The Day Ahead: August Employment Data to Drive MarketsMarkets are roughly flat Friday morning ahead of the widely anticipated employment report for August, which at 8:30 eastern time is set to show that jobs declined for the third straight month. Ninety minutes before the opening bell, the S&P 500 is down 0.75 to 1,089.00. The 10 year Treasury note is -0-07 at 99-25 yielding 2.65% (+2.5bps) and the October deliver FNCL 4.0 is -0-02 at 102-22. The employment report is anticipated to show that 100,000 jobs were lost last month, though the decline relates to disappearing Census jobs rather than another dip. Still, private payrolls should increase a modest 41,000, according to economists polled by Reuters, and manufacturing jobs should be up by 10,000. “Unfortunately, whatever we see privately probably gets fully offset by other public sector...(read more) 
Pre-NFP Outlook Plus Loan Pricing ComparisonWhat a rough morning! It appears my hard drive no longer wants to work. I tried to reach out for help, but no one answered. Then my gf called and reminded me that today is 9.02.10. This explains why Glenn is M.I.A, he's curled up on his couch watching re-runs of 90210! I think his favorite character is Dillon. Enjoy your day off Glenn! Oh well. I'm up and running again...... The day has not been so pleasant for originators either. Loan pricing is 2.9bps worse on average today. That doesn't sound too bad, but take a closer look. The largest rebate reductions were applied to the note rates closest to par. These are the rates most borrowers are hoping to be quoted. There is good news though, you can still lock in a rate below 4.25%! It's just gonna cost more at the closing table. The stock market...(read more) 
The Day Ahead: Jobless Claims, Pending Home Sales, ProductivityInterest rates are modestly higher this morning after equities closed nearly 3% higher Wednesday. Ninety minutes before the opening bell, S&P 500 futures are just below yesterday's high at 1081.25 and the benchmark 10-year Treasury note is -0-04 at 100-09 yielding 2.593% (+1.3%). The October delivery FNCL 4.0 is -0-02 at 102-27. A busy economics calendar carries the potential to shift market sentiment in the day ahead. At 8:30, initial jobless claims are anticipated to rise 2k to show that 475,000 Americans filed for first-time unemployment benefits in the final week of August. The labor news comes one day before the official monthly numbers are released. The report should give further context to yesterday’s mixed data ? the ADP report showed 10k private jobs disappeared in the month...(read more) 
Bond Market Suffers as Investors Reallocate Funds into Riskier AssetsStocks are rallying and the bond market is taking a beating after a much better than expected read on the manufacturing sector. The August ISM Manufacturing Index came in at 56.3 vs. economist estimates for a read of 53.0. The "Prices" index rose 4 points to 61.5 from 57.5, quelling deflationary fears and giving bond traders a reason to fade the rally. Stocks were up before 10am data but didn't take flight until after ISM flashed. S&P futures are currently up 27 handles at 1075.25. The bull flattener is unwinding again. The 2s/10s curve is 9bps steeper at 209bps. The long bond is 14.7bps higher at 3.668%. The 7-year note is +12.5bps at 2.046%. The 10yr note is +12.3bps at 2.593%. Volume was heavy into the downtrade. Although production MBS coupons are performing much better than their benchmark...(read more) 
Fed Leaves Door Open to Buy More MBS if NeededProduction MBS coupon prices hit new record highs yesterday, pushing mortgage rates through the 4.25% barrier to new lows. "Rate sheet influential" MBS coupons were led higher by longer dated Treasuries, which benefitted from month-end allocations and a continued correction from the sell off seen last Friday. The new all-time price high for the front month FNCL 4.0's is 103-19. The October delivery FNCL 4.0 went out +0-10 at 103-07. Yield spreads ended the session wider (nominally) vs. duration adjusted benchmarks. The 10 yr note went out +0-17 at 101-12 yielding 2.47% (-6bps). The 2s/10s curve bull flattened back down to 200bps. It should be noted that Treasuries rallied regardless of a modest bid for equities. The S&P closed +0.03% at 1049.27. A hint of better pricing to come was offered...(read more) 
The Day Ahead: Stocks Rally Ahead of Jobs, Manufacturing DataThe first day of September looks to open strongly while investors await key data on employment and manufacturing. About ninety minutes before the opening bell, S&P 500 futures are up nearly 12 points to 1,060 and Dow futures are jumping 75 points higher at 10,081. Interest rates are moving higher in the wake of improved sentiment in equities. The 10 year Treausry note is -0-10 at 101-01 yielding 2.507%. The October delivery FNCL 4.0 is -0-02 at 103-05. European stocks are also about 1.5% higher and Asian markets finished stronger (a notable exception being China’s Shanghai index, which fell 0.6%). At 8:15, the ADP Employment Report is anticipated to show that 18,000 private jobs were created in August, according to economists polled by Reuters. Investors will be watching the numbers...(read more) 
Lock Desks Buy Back Hedges. Potential Shift in Production Coupon Looms Yesterday we heard banks were buying back MBS hedges. This means lock desks were actively reducing their pipeline coverage (forward hedges) to account for an expected increase in fallout. More fall out = less deliverable loans = added hedging costs unless you replace the production with similar paper before settlement, READ MORE Looking back, this was a hint of strong pricing to come. Just in case you haven't seen the headline yet, this is what we told consumers today: ATTENTION: Mortgage Rates Hit New Lows I actually felt the need to apologize to retail L.Os in that post because I know those headlines might make their lives miserable. It is what it is though, the FNCL 4.0 hit a new price high and loan pricing reflects it. On average, rebate was 30.2bps better vs. yesterday. HERE is a full...(read more) 
Production MBS Coupon Hits New High. Loan Pricing Noticeably Better as 3.5s Trade ForwardWhile 2 of the 3 top tier data sets released this morning failed to improve on a month to month basis, 2 of those 3 were better than economists were expecting. Consumer Confidence perked up and beat consensus forecasts while Chicago PMI was a downer all around. Equity market seem to be focusing on the better than expected headlines vs. the month over month deteriorations, specifically the large uptick in Consumer Confidence. I say that because Consumer Staples and Consumer Discretionaries are leading the broader market higher. I would also point toward technical support at S&P 1040 as a reason to buy. This is where volume accumulated and stocks reversed course after a weak Chicago PMI print at 945am. S&Ps are currently +6.00 at 1051. Trading volume has already surpassed yesterday's...(read more) 
The Day Ahead: Home Prices, Consumer Confidence, FOMC MinutesRecap of Yesterday After experiencing a sizable sell off on Friday, the bond market spent the day yesterday in recovery mode. Prices of U.S. Treasuries rallied across the curve with the long end leading the way. The 10 year TSY note went out +1-00 at 100-26 yielding 2.53% (-11.6bps). The 7 year note was the star performer, rallying 25/32 in price to a yield of 1.969% (-12.3bps). Trading volume was below average and position squaring/short covering was noted. Trading volume in stocks was also apathetic, based on my records equity futures experienced their lowest volume day of the year on Globex. This is indicative of an indecisive market, something that should continue as we draw closer to the release of the Employment Situation Report on Friday. The day started slow in TBA land as dealers attempted...(read more) 
Mixed Rate Outlook Provides Perspective: Risk Greatly Outweighs RewardI sat down to write "The Week Ahead" last night and drew a blank. Not that it was a tedious task outlining the events that held the potential to move mortgage rates, that was the easy part. My frustrations arose when formulating an outlook. Allow me to think out loud for a moment... We've just come off a week that ended with a scary sell off, but that sell off wasn't exactly unexpected though. The "rate sheet influential" end of the yield curve was/is extremely overbought and positions skewed largely toward the LONGS . If not for pure position squaring purposes, Treasuries were due a correction and it happened. The bond market is clearly still searching for directional guidance though. This is evident via added chopatility around econ data, specifically at the price highs and lows. It is also...(read more) 
MBS Prices Recover from Friday Downtrade. Reprices for Better PossibleLed by a corrective bounce in Treasury prices, rate sheet influential MBS coupons have rallied more than 8 ticks from where they opened at the session lows. This is not reflective of concentrated demand for agency MBS, as evidenced via wider production MBS coupon yield spreads, as much as mortgages are playing follow the leader with a bull flattening benchmark yield curve. Although it is normal for MBS to lag a TSY rally, there also looks to be some localized weakness in the MBS market as dealers are attempting to distribute the $3+ billion in new loan supply that was offered by originators on Friday. The October delivery FNCL 4.0 is currently +0-13 at 102-24. Bid wanted... Treasuries are retesting the Friday sell off. The September expiry 10 year TSY futures contract is +0-30 at 126-03. The...(read more) 
The Week Ahead: Busy Calendar Before Employment Situation ReportEconomic Calendar The first Friday of a new month is upon us, that means the official Employment Situation Report is just ahead. Because this data provides an in-depth look at the health of the driving force behind consumer spending, the labor market, investing sentiment is highly dependent on the findings of the two surveys that make up the Employment Situation Report: Non-Farm Payrolls and the Household Survey. With that in mind, leading up to the release the market will likely be hesitant to head too far in either direction without adequate confirmation and acceptance of that move. From Reuters : U.S. August payrolls and unemployment data on Friday. Payrolls are forecast to have fallen by about 99,000, according to Reuters polling, a smaller fall than the 131,000 in July. After the recession...(read more) 
Bond Market Hits Reset Button, Poor Econ Data Forecasting, Loan Pricing Review A brief market wrap and a few observations heading into the weekend... The October Delivery FNCL 4.0 went out -0-17 at 102-11. Rate sheet influential mortgages, which were trading at extreme oversold spread levels this week, performed well against Treasuries and swaps today, but huge price declines forced lenders to reprice for the worse, pushing mortgage rates higher. As would be expected, originator pipeline hedging picked up today. Over $3bn in new loan production was sold forward in the TBA market, mostly in 4.0 and 4.5 30 year paper. While the damage seems dramatic, after the dust settled, you can see the FNCL 4.0 has landed right back in the middle of it's month long range. Steep MBS price declines were a direct result of a correction in the long end of the benchmark yield curve....(read more) 
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