Posts Tagged ‘Europe debt crisis’

Market recap for week ending 9/28/2012

Posted on: September 28th, 2012 by Fred Bohman No Comments

This week was another good week for mortgage interest rates. Rates today are just under 1/8 of a percent better than they were on Monday. Ever since the Federal Reserve (FED) announced the 3rd round of Quantitative easing we have seen rates improving.

Yesterday was the first day we saw rates increase in an 8 business days span, which is the longest span rates have declined since December 2008. When the FED announced that the new easing program was going to be focused on mortgage backed securities it caused a shift in investors mentality. US Treasuries were always the go to choice for investors when they were scared because it is considered the safest investment out there. Now that the FED is heavily buying mortgage backed securities investors are starting to see them as safe and they offer a much higher rate of return than Treasury bonds. It is because of this shift in investor mentality we have seen such a long and strong rally in the mortgage bond market.

Another event fueling the mortgage bond rally is that Europe’s solution to solving their debt problem seems to be falling apart. This week we saw more riots in Greece and it is looking more likely they will exit the European Union. Also Spain seems to be unwilling to accept the conditions that would come with the financial support from the European Central Bank (ECB).The reason all this affects us is that when Europe is in crisis mode investors get scarred and money flows into the mortgage bond and US Treasury markets.

As mentioned above we did see sell off yesterday in the mortgage bond market, but that is to be expected every now and then as the market never moves in a straight line. Both the technical and fundamental data looks good for rates moving into next week.

Market recap for week ending 9/21/2012

Posted on: September 21st, 2012 by Fred Bohman No Comments

This week was a good week for interest rates. Rates today are just over 1/8 of a percent better than they were on Monday. The main reason we saw rates improve this week was because of the Federal Reserve’s (FED) decision last week to do another round of quantitative easing.

Generally the 10 year US Treasury bond moves in unison with mortgage bonds, but after the FED’s announcement to focus on buying mortgage bonds in this round of easing we have seen the gap between the two narrow. This is good for mortgage rates because mortgage bonds have a direct impact on mortgage rates but Treasury bonds don’t.

European economies are continuing to slip deeper into recessions. Europe is still wrestling with their debt problems but seems to be on track to resolving them. This would generally be consider bad news for US mortgage rates, but the positive effect of the FED’s decision to buy more mortgage bonds outweighed the negative.

No major economic reports are schedule to be released for the rest of the day so I don’t expect any major movement in the market today.

Market recap for week ending 8/31/2012

Posted on: August 31st, 2012 by Fred Bohman No Comments

Market recap for week ending 8/31/2012

This week was a relatively calm week for mortgage rates compare to recent weeks. As of this morning rates were slightly better than they were Monday morning and by the end of today they ended up about .25% better than Monday.

This morning the Federal Reserve Bank(FED) President Ben Bernanke held his long awaited opening speech at the Jacksonhole conference. The reason this speech was so anticipated was because investors were waiting to see if Bernanke would reveal any details in regards to another quantitative easing program. As I have mentioned in my previous articles another easing preprogram would stimulate the economy by having the FED purchase additional Treasury bonds and mortgage backed securities which in turn would bring down interest rates and the cost of borrowing which in theory would cause people to spend more money and stimulate the economy.

Like many times when Bernanke speaks he said a lot without giving any details. In today’s speech he did not give any details about another easing round but he did mention that the FED is ready to ease if they see the need to. Apparently that was enough for investors, because we saw a big rally in the bond market after the speech. Once again a rally in the bond market equals lower interest rates.

In Europe this week leaders have continued on working on a plan to solve their debt problem. Germany is still showing some opposition to the current plan, but they are not as strongly opposed to it as they were. The German court is to rule on whether it is legal or not for the European Central Bank (ECB) to buy bonds from struggling EU countries on September 12th . The reason Germany has so much to say in the matter is that they are the largest economy in Europe and there for has most of the money. Once again the reason this affects mortgage rates is that when Europe is in trouble investors move their money to safer US investments driving down our rates.

Market recap for week ending 8/24/2012

Posted on: August 24th, 2012 by Fred Bohman No Comments

This week mortgage interest rates went on a wild ride, varying by as much as .25% from this week’s high and low. As of this morning mortgage rates slightly lower than they were Monday morning.

On Monday and Tuesday rates were slowly drifting higher and many people in the mortgage industry were starting to get nervous that higher rates was going to be the new trend. The main reason we saw rates moving up was because of continued confidence in European leaders to resolve their debt problems. Another reason was that there had been a few good US economic reports and with the improving economy people were starting to doubt that the Federal Reserve(FED) would do another round of quantitative easing which would stimulate the economy by keeping/pushing rates low.

This all changed on Wednesday when the minutes from the last Fed meeting were released. Usually there are not any big surprises in meeting minutes, because by the time they are release most investors already know what the Fed discussed, but this wasn’t the case this time. According to the minutes the FED still seems set on another round of easing. The news of another possible easing sent the mortgage bond market through the roof and completely reversed the higher rate trend we were seeing. This was followed up by some bad US economic reports today to support the reasons for another round of easing.

The FED still has not confirmed they will do another round of easing or exactly what it will entail. Most investors are expecting it to take place in September and involve purchasing long-dated treasuries and mortgage-backed securities. The FED chairman Ben Bernanke is holding the opening speech at the Jackson Hole economic summit next Friday, and I think he will revile more information on any easing plans then.

As of right now the trend indicators on mortgage rates are neutral. If/when the FED confirms another round of easing that would put rates back in a downward trend. On the other hand continued success in Europe with resolving their debt problems will put an upward pressure on rates. I think next week will be a big week for rates as we could see another easing program unveiled and with a majority of European leaders back from vacation we could see the European debt crisis solution continue to succeed or fall apart.

Market recap for week ending 8/10/2012

Posted on: August 10th, 2012 by Fred Bohman No Comments

Market recap for week ending 8/10/2012

This week has been a bad week for mortgage rates. As of this morning mortgage rates are approximately 0.125% higher than they were on Monday.

The main reason for the climb in interest rates this week has been that European leaders are continuing to work through their debt problems. Their problems are far from over, but the fact that they are working to resolving them is increasing investors’ confidence and money is flowing out of safe haven investment such as US Treasury bonds into higher risk investments. When investors are flocking to US Treasuries there is more money competing for investments which drives rates down. Now that there is less money competing for these “safe investments” rates are staring to creep back up.

In other rate related news we saw some bad economic reports out of China, Germany, and France this week which is confirming that the Global economy is slowing. The fact that the Global economy is slowing is actually good news for rates but it was overshadowed by the positive news out of Europe.

Next week as usual all eyes and ears will be on Europe and investors will be watching on how they progress or regress with their debt crisis solution.

All eyes and ears still on FED and Europe

Posted on: July 20th, 2012 by Fred Bohman No Comments

Market recap for week ending 7/20/2012

This week we did not see much movement in mortgage interest rates. As of this morning rates are slightly lower than they were Monday morning, but only by a thin margin. As usual the US markets have been watching Europe’s debt problem and monitoring the Federal Reserve(FED) for any conformation of another quantitative easing move. Any bad news out of Europe is generally good news for interest rates and any confirmation from the FED of another easing program is also be good for rates.

The following were some noteworthy economic news this week that influenced mortgage rates :

Tuesday and Wednesday Ben Bernanke our Chief of the FED testified in front of Congress. Everyone was waiting to see if Bernanke would give us any confirmation of another easing move, but as usual he has mastered saying a lot without really saying anything.

On Wednesday the FED released their Beige book which is a survey of business conditions in 12 U.S. districts. The report said that the US economy expanded at a modest to moderate pace in June and early July, as retail sales and manufacturing cooled in some regions. Once again any negative economic new is generally good news for rates and will put more pressure on the FED to do another easing move.

In Europe, Spain’s Treasury bonds rates kept on climbing this week which means they now need a bailout more than ever. The rest of Europe is still trying to figure out how to deliver this bailout. Germany which is the largest economy in Europe and ultimately calls the shots wants very strict terms on the bailout. The debt problem in Europe has been going on for a long time now and there is still no solid plan to resolve it. As long the debt mess remains unresolved investors will continue to move their money to save havens such as US Treasuries thus driving down US mortgage rates.

Since there is a political gridlock in Washington and not much is getting done many politicians are looking to the FED to take action, so I think there will be another easing move but not until after the July employment figures come out in August. I don’t think another easing move will have much effect on the economy, but at least it will keep mortgage rates down.

Mortgage rate outlook and market preview for the week starting July 16th 2012.

Posted on: July 16th, 2012 by Fred Bohman No Comments

Early activity saw stock indexes a little weaker this morning after the DJIA jumped 204 points last Friday. The 10 yr note at 9:00 am +10/32 at +12/32 at 1.46% and 30 yr mortgages +7/32 (.22 bp) frm Friday’s close. Prior to 8:30 data the 10 yr traded unchanged at 1.49% but June retail sales reported at 8:30 were much weaker than what was thought. Overall sales expected up 0.2% fell -0.5%; ex auto sales was expected +0.1%, was down 0.4%. The softer sales data sparked a little buying in treasuries and mortgages but really didn’t have much of an impact on the key stock indexes. A weakening job market is sapping households of the confidence and income gains needed to boost expenditures, which account for about 70% of the economy. Without gains in spending at retailers the economy isn’t going to improve and may slip further.

At 8:30 the July NY Empire State manufacturing index was better than forecasts. Up to 7.39 frm 2.3 in June; estimates were for the index at 3.8. New orders decreased to minus 2.7 this month from +2.2 the prior month. A measure of shipments rose to 10.3 from 4.8. The employment measure rose to 18.5, from 12.4 in June. The index of prices paid fell to 7.4 from 19.6. That new orders declined offset the better overall index and the increase in the employment index. At 10:00 May business inventories were expected +0.2%, as reported up 0.3%

At 9:30 the stock market opened weaker; the DJIA -30, NASDAQ -6, S&P -3. The 10 yr note at 9:30 1.45%, 30 yr mortgage prices +10/32 (.31 bp).

This week has a lot of data to focus on and Fed chief Bernanke testifying at Congress on Tuesday and Wednesday. This morning the bellwether 10 yr is at its key technical resistance. Global economies continue to decline with the IMF out this morning once again lowering its forecasts for growth.

In Europe this morning, the ECB would no longer oppose the forcing of losses on senior bondholders of euro-area banks. The Wall Street Journal today reported the ECB’s change of position, after the Frankfurt-based ECB consistently opposed handing losses to senior creditors of Irish banks following the collapse of the country’s financial sector. The ECB also opposed efforts to restructure Greek sovereign debt and refused to take losses on Greek government bonds held on its balance sheet earlier this year. European officials are now debating how best to rescue Spain’s banks after its leaders requested 100 billion euros ($122 billion) of international aid last month, becoming the fourth euro nation to seek help after Greece, Ireland and Portugal.

This morning the 5 yr treasury set a new record low yield while the benchmark 10 yr note at 1.44% is 5 basis points lower and a record low. While at 1.45% and fractionally below 1.46% the key technical resistance, we would want to see some follow-though to the rally to confirm the 10 yr will move to lower rates. With Bernanke testifying tomorrow and Wednesday traders will look for anything in his statement or in the Q&A that would signal the Fed will ease again. If the Fed does another easing move we think the Fed will concentrate more on buying MBSs as well as long term treasuries. As we have noted in the past, an easing won’t do much to turn the slowing economy and it won’t contribute to adding any jobs, but the hope is banks will loosen lending practices thus increasing borrowing. It is unlikely though that will actually occur. The crux is that consumers are not in a borrowing mode except re-financing mortgages.

China’s growth slowing on Europe’s spreading debt problems

Posted on: July 9th, 2012 by Fred Bohman No Comments

Mortgage rate outlook and market preview for the week starting July 9th 2012.

Friday the 10 yr note pushed slightly out of its month long trading range on another soft employment report showing growth continuing to decline on month to month basis. The 10 yr had very solid resistance at 1.565 for over a month on any rallies, Friday the note closed at 1.55%, this morning the 10 yr is trading down at 1.52% with stock indexes slightly weaker in pre-open futures trading.

Not a lot of critical data this week; Treasury however will auction s, 10s and 30s Tuesday through Thursday. With the technicals looking better on the 10 yr and mortgages how well the bidding goes will set the tone. US stock market also plays its usual roll; if the indexes rally it will keep a lid on the bond markets continual improvement.

Today begins Q2 earnings season with Alcoa starting the parade after the markets close this afternoon. Europe still in the headlights with interest rates in Spain up again today. The euro fell to its lowest level in two years against the dollar as regional finance ministers gather in Brussels to discuss crisis-fighting measures adopted by heads of government at a summit last month. Spanish and Italian bonds fell amid concern finance ministers will fail to agree on sufficient crisis-fighting measures to stem the euro area’s woes. Recapitalizations of banks by the European Stability Mechanism will have no need for a sovereign guarantee, commission spokesman said in Brussels today. Details of how the future system will work remain to be negotiated.

Consumer prices in China rose 2.2% in June from a year earlier, according to a report released today. That’s the slowest pace in 29 months and compares with the median forecast for a 2.3% inflation rate. China’s economy is softening on Europe’s contagion that has infected US growth also. China cut rates last week and lessened reserve requirements for banks in a move to increase lending in the country.

At 9:30 the DJIA opened -12, NASDAQ +1 and the S&P unchanged; the 10 yr note rate at 1.54% after being down to 1.52% earlier. Mortgage prices up 5/32 (.15 bp).

Now that the 10 yr note has cracked its key resistance at 1.56% the technical outlook suggests the 10 yr could move to its low in early June at 1.47% and continue to push mortgage rates lower. As is the case, it’s a moving target though with Europe holding the key. There is concern now that the EU finance ministers will fail again to come up with agreeable details on supporting banks in Spain. Last week’s EU summit set the outline with ministers agreeing to help failing banks in Spain and Italy but as usual there was nothing specific, being left to the ministers to figure it out. Presently the view is there will be difficulty accomplishing the stated goal.

Europe’s economy is showing increasing signs of weakness

Posted on: July 2nd, 2012 by Fred Bohman No Comments

Mortgage rate outlook and market preview for the week starting July 2nd 2012.

Treasuries and mortgages doing a little better to start this week’s action. The 10 yr note +6/32 at 1.62% and at 9:30 30 yr mortgages +3/32 (.09 bp) frm Friday’s closes. The DJIA opened -16, NASDAQ -3.

The 4th falls in the middle of the week. Trading volumes should be thinner than usual with many taking a few days off. There are a number of key measurements this week; both June ISM reports (manufacturing today (see below) and services on Thursday), weekly claims on Thursday and the June employment data on Friday. The early forecast for the employment report, non-farm payrolls +100K and non-farm private jobs +105K with the unemployment rate unchanged at 8.2%.

At 10:00 two reports; the June ISM manufacturing data main index was expected at 52.2; as reported manufacturing in the U.S. unexpectedly contracted in June for the first time in almost three years, indicating a mainstay of the U.S. expansion may be faltering. The Institute for Supply Management’s manufacturing index fell to 49.7, worse than the most-pessimistic forecast in a Bloomberg News survey, from 53.5 in May. The ISM’s U.S. production index decreased to 51 from 55.6. The new orders measure dropped to 47.8, the lowest since April 2009, from 60.1, and the gauge of export orders declined to 47.5, also the lowest in three years, from 53.5. The employment gauge decreased to 56.6 from 56.9 in the prior month. The unexpected decline sent interest rates lower and stock indexes down frm pre 10:00 levels. May construction spending also at 10:00 was stronger than the 0.2% expected, increasing 0.9%.

Europe’s economy is showing increasing signs of weakness after stalling in the first quarter as the worsening fiscal crisis erodes the confidence of executives and consumers. The gauge of euro-region manufacturing held at 45.1 in May, London-based Markit Economics said today in a final estimate. That compares with an initial estimate of 44.8. A reading below 50 indicates contraction. The European Central Bank’s governing council gathers in Frankfurt on Thursday with speculation officials will lower their benchmark interest rate by at least 25 points to a record low of 0.75% as the economy hovers near recession.

A purchasing managers’ index for China fell to 48.2 in June from 48.4 in May, HSBC Holdings Plc and Markit said today. A similar measure released by the government yesterday also slid. The purchasing managers’ index released yesterday by the Beijing-based statistics bureau and China Federation of Logistics and Purchasing fell to 50.2 in June from 50.4 in May. The data showed inflation pressures waning, a slump in export orders, a lack of domestic demand and a “modest” decline in the size of the manufacturing workforce. The gauge of export orders in the federation’s index contracted for the first time since January.

The US 10 yr note and 30 yr mortgage rates continue to trade in their respective narrow ranges; both are holding within five week ranges but there is an increasing belief Europe won’t drive safety moves into US treasuries as strongly as the last eight months. One of key reasons US rates have stayed low is due to investors parking money in the safest places as Europe wrestles with how to save banks and cut spending.

US markets still watching Europe’s every move.

Posted on: June 25th, 2012 by Fred Bohman No Comments

Mortgage rate outlook and market preview for the week starting June 25th 2012.

The 10 yr note is improving as are mortgage prices while the stock indexes are opening lower. The 10 yr yield has ranged from a high of 1.68% and a low of 1.57% over the last three weeks, mortgage rates have ranged just 6 basis points in rate on 30 yr mortgages in the same time frame. The Fed has revised its economic growth outlook lower for the first time since last November, mostly based on the decline in Europe’s economy. On Thursday and Friday there is an EU summit meeting that isn’t likely to resolve much; meeting upon meeting over the last two years has not accomplished anything of significance for the long run; just putting out brush fires. This time should be no different as Germany remains opposed to a plan that would set up deposit insurance fund to protect all depositors against failures. Germany stands opposed to any plan that allows individual states to set their own austerity targets.

Billionaire investor George Soros called on Europe to start a fund to buy Italian and Spanish bonds, warning that a failure by leaders meeting on June 28 to produce drastic measures could spell the demise of the currency. German Chancellor Angela Merkel said in a June 15 speech that she opposed “premature” proposals for issuing euro-area bonds. Spain formally requested a bailout for its banks as it negotiated details of the aid. A few weeks ago Soros commented the EU had 90 days to work out a solution before the euro currency would collapse. Europe’s debt crisis is putting pressure on corporate earnings globally with companies cutting forecasts and signaling profits will fall at more companies this year.

Early this morning the 10 yr note traded up 18/32 at 1.61% and 30 yr FNMAs were up as much as 8/32 (.25 bp), by 9:30 the 10 was up 14/32 and 30 yr Fannie up 4/32 (.12 bp). The DJIA opened -90, NASDAQ -33; the 10 yr up 16/32 at 1.62% -5 bp and 30 yr MBS prices +6/32 (.18 bp). Markets expecting the Supreme Court decision sometime today; talk that the ruling would be announced at 10:00.

At 10:00 May new home sales were expected to be up 2.0% frm April; as reported sales jumped 7.6% to 369K units (annualized); April sales however were revised lower, from +3.3% to -1.2%. Based on the sales pace there is a dwindling supply, 4.7 months down from 5 months in April. The median sales price at $234,500 up 5.6% yr/yr. Sales total was the largest since April 2010; the 4.7 month supply is the lowest since Oct 2005. There was no initial reaction to the report in the stock or bond markets.

This week has Treasury selling $99B of notes Tuesday through Thursday. There are a number of key data points; May consumer confidence, May durable goods orders, weekly claims, May personal income and spending, June Chicago purchasing mgrs. index lead the parade.

The recent trading ranges in the treasury and mortgage markets are likely to hold any movement this week. The EU summit isn’t getting any respect from the markets with Germany continuing to resist about any idea tossed out for consideration. As long as Germany is unwilling to bend (and take on more risk) there is little chance there is going to be an acceptable long range “plan”. Germany won’t move off its stringent objections to anything as long as it isn’t forced to do so. The force would come when the German economy softens more and the German bond market comes under pressure; so far German debt yields very low rates as demand for its debt from Europeans continues robust.