Posts Tagged ‘Spanish bailout’

Market recap for week ending 10/19/2012

Posted on: October 19th, 2012 by Fred Bohman No Comments

At the time I am writing this mortgage interest rates are about 1/8th of 1 percent higher than they were last Friday.

This week was generally bad for mortgage rates with a slight recovery today. Between Tuesday and Wednesday we saw a big hit to the mortgage bond market. The main reason for the selloff was that we saw some positive US economic reports and some positive news out of Europe. For the moment it looks like Spain is going to ask for support from The European Central Bank with their debt problem. With Europe backing away from their debt problem investors are pulling their money out of safe US investments and returning them to other investments driving US interest rates up.

The reason we saw a slight recovery today was because at the European economic summit that was held today there was not much talk about additional help to Spain. European leaders did however agree to create a bank supervisory entity by the end of the year.

A lot of loan officers and bankers were freaking out this week thinking that the refinance boom was over and that rates were going back up to 5%. I don’t think our economy or the world economy is out of the woods yet and therefore I don’t think we will see rates go to high anytime soon. This tends to happen once a month or so, a few good US economic reports combine with some positive rumors out of Europe and rates shoot up for a few days until the sobering realty comes back that the global financial crisis is far from over.

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.

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.

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.

Greece staying in EU for now

Posted on: June 18th, 2012 by Fred Bohman No Comments

Mortgage rate outlook and market preview for the week starting June 18th 2012.

The Greece vote yesterday to some degree confirmed Greece will stay in the Union. At least for a while. The conservative party that backs keeping Greece in the EU won by less than a majority taking 30.1% of the vote with 65% counted while the radical Syriza party that wants to bolt the Union took 26.5%. The conservative New Democracy Party has 103 seats of the 300 seat parliament while Syriza has 70 seats; now the New Democracy Party has to form a government that has the votes to work out a plan to stay in the Union. The situation in Greece is far from settled and we continue to believe before its all over (whenever that may occur) Greece will leave the Union as will some of the other troubled debt loaded countries. In the meantime that will likely last another couple of years the world will have to put up with what now appears a failed experiment joining so many sovereign countries under one umbrella. Last week Alan Greenspan joined in with his comment, “ it was a noble but failed experiment. 17 countries, 17 parliaments, 17 central banks; 17 opinions; not an easy situation to expect something of substance.

Spain’s 10 yr debt rose above 7.0% today; Spain is slipping and may lose its borrowing party while getting money frm the EU and ECB to keep its banks from failing. Spanish debt has slumped, pushing the 10-year yield today to a euro-era record of 7.14%. The bonds are the worst performers among 26 developed markets since June 9, when the Economic minister said he would request as much as 100 billion euros ($127B) of emergency loans from the euro area to shore up a Spanish banking system hobbled by bad assets. The bank aid will increase Spain’s debt to about 90% of gross domestic product, Moody’s Investors Service said on June 14, since the sovereign is responsible for repaying the loans. That threatens to further limit its ability to sell bonds, Moody’s said, as it dropped Spain’s rating three levels to Baa3, one step above junk. Italy’s 10-year yield climbed 14 basis points to 6.06%. The U.K. two-year gilt yield slid to as low as 0.173%, a record.

G-20 countries meeting in Mexico with the topic being Europe. These G meetings usually don’t amount to much; photo ops and quotes structured to make leaders look good. Nevertheless there will be comments about how G-20s are concerned and will help if certain conditions are met. After the G-20 gathering, Italian Prime Minister Mario Monti will host a meeting in the Italian capital on June 22 with Merkel, Hollande and Spanish Premier Mariano Rajoy to seek common ground. The three will gauge Germany’s position after Merkel last week said her country’s resources weren’t “infinite” in the “Herculean task” of mastering the debt crisis — and that jointly issued euro bonds and a euro-wide deposit insurance were a non-starter. Merkel’s role as leader of Europe’s biggest economy gives her an effective veto on crisis-fighting policy.

Treasuries and mortgages doing slightly better this morning as the stock indexes slightly weaker. At 9:30 the DJIA opened -47, NASDAQ -16; the 10 yr note +5/32 at 1.57% -1 bp; 30 yr mortgage prices at 9:30 +1/32 (.03 bp).

The only data today; the June NAHB housing mkt index was expected at 28 unchanged from May; the index increased 1 point to 29 after increasing 4 points in May. The index is at its best level since May 2007; in that context it clearly shows how weak the housing market is.

This week most all data is directed to the housing sector with May housing starts and permits on Tuesday and May existing home sales on Thursday. Thursday we get the weekly unemployment claims currently expected -6K at 380K. Thursday also has the key Philadelphia Fed business index, expected at -3.5 frm -5.8 in May.

It looks like a quiet day; interest rate markets about unchanged and the stock market showing little appetite for rallying so far. If he stock indexes turn positive the bond and mortgage markets will likely see some selling. With the Greek vote behind us the next key event is the FOMC policy statement on Wednesday at 12:30 then Bernanke’s press conference at 2:15. In the absence of any news out of Europe the US markets are not likely to change much until Wednesday afternoon.

Spain seeks emergency bail out

Posted on: June 11th, 2012 by Fred Bohman No Comments

Mortgage rate outlook and market preview for the week starting June 11th 2012.

Very early this morning the 10 yr note price traded down 10/32 at 1.66% but by 9:00 down -3/32 at 1.64% (the 10 hit 1.72% briefly on the news announcement); mortgage prices at 9:00 generally unchanged. Spain abandoned unilateral attempts to rescue its banks and became the fourth country in the 17-member currency union to seek an emergency bailout. The aid blueprint hammered out in an emergency conference call among euro finance chiefs two days ago is designed to create a line of defense if the Greek voting unleashes a new bout of market turmoil. Next Sunday Greece will vote again to form a government, two months ago there was no consensus with the country tilting toward rejecting the EU austerity pushed on it. The most recent surveys showed the main party opposing the terms of its bailout vying for first place.

As the clock ticked on, the positive take over Spain’s cash infusion began to wear off; the stock indexes t 8:00 were +100 on the DJIA, at 9:00 +69. The bond market lost some of its price declines; while the Spain thing is welcome, there are still very high hurdles with Greece’s election and the belief Spain will need more to fend off bank collapses. Next week is a huge weak for the US and global markets. On Sunday the Greek election that at this point is too close to call on whether citizens will essentially vote to leave or stay, recent polls are slightly positive that voters will vote to say. On Monday the 18th there is a G-20 meeting scheduled I Mexico that will focus on Europe’s mess. On Tuesday and Wednesday (19th and 20th) the FOMC meets an Wednesday the policy statement and Bernanke’s press conference. There is still many that believe the Fed will announce some kind of QE, most likely an extension of Operation Twist set to expire at the end of the month.

The excitement over Spain’s asking for $125B to shore up its banking system was short-lived with markets pulling back from the highs in stock markets. It is a step but a baby one at best, and indicates there are more troubles ahead. Attention now will turn to Italy, the third largest economy in the EU. The bailout helped move Italy to the frontline of the crisis, as bets increased Europe’s third largest economy may be the next one to succumb. Italy’s shrank 0.8% in the first three months of this year from the fourth quarter, confirming an initial estimate. Italy has 2 trillion euros of debt, more as a share of its economy than any advanced nation after Greece and Japan. Its Treasury has to sell more than 35 billion euros of bonds and bills per month to keep frm defaulting.

Re-capping the reaction to the Spanish bailout; initially there was euphoria, the US 10 yr note last night hit 1.72% frm 1.64% close last Friday; it lasted about a minute or so before it backed down. Europe’s stock markets are better but off their highs, the US stock indexes also off the best pre-opening levels at 9:30. The Spain deal is a slight plus but not much and now the spotlight will also turn onto Italy and of course the Greek election next Sunday.

At 9:30 the DJIA opened +75, NASDAQ +24; the 10 yr note rate at 1.65% +1 bp with 30 yr mortgage prices -4/32 (.12 bp).

Expect continued volatility today in the US markets. This week Treasury will auction 3 yr, 10 yr an 30 yr issues to borrow $66B, the same amount Treasury has gone for over the last few months. Economic data; the calendar has meat on the bone and will get attention but as long as Europe flounders the main emphasis will remain on what snippets and news comes from the region as it continues to drag down global economic outlooks. There isn’t any data out today.

Europe’s debt problems pushing US mortgage rates to record lows

Posted on: June 4th, 2012 by Fred Bohman No Comments

Mortgage rate outlook and market preview for the week starting June 4th 2012.

Early activity this morning had the bond and mortgage markets trading lower after the explosive rally on Friday on the weak May employment report. The 10 yr note and 30 yr bond are falling in rate on increasing global moves to safety. Obviously Europe is leading the parade to safety as there is little progress in dealing with its debt and rapidly declining economy; China is slowing quickly and India is now showing cracks in its economy. In the US we are doing better for the moment but also being pulled down by the global softening. Investors of all sizes are simply parking money in sovereign debt, in the US, Germany and other AAA rated sovereign debt (the US rating is AA+). Investors no longer looking to a return on investment, just return on the principal.

As euro-area unemployment reached its highest level on record, manufacturing output contracted for a 10th straight month in May and the currency plunged close to a two-year low against the U.S. dollar, leaders continued to wrangle over the details of support for the currency bloc. There is an increasing cry in Europe from the debt ridden countries to institute euro bonds. With markets bracing for further deterioration in Spain’s finance sector and a possible Greek departure from the 17-member euro area, there are calls for a “banking union” in Europe involving a centralized system to re-capitalize lenders. Germany’s Merkel shut off another crisis-fighting avenue the same day as she toughened her opposition to euro-area debt sharing, saying that “under no circumstances” would she agree to euro bonds. Germany holds most of the cards, so far unwilling to play many of them fearing the inevitable, decline in Germany’s economy and its own debt if it has to back euro bonds.

Treasuries and mortgage markets are technically overbought while the US equity market is oversold. A bounce back is not unusual with short term oscillators and momentum indicators at extreme levels. Traders will be reluctant to step in now until markets can consolidate and test the underlying demand at current levels in financial markets. There is however no reason to expect interest rates will increase much given the underlying fundamentals.

The DJIA opened +15, NASDAQ +18; the 10 yr at 9:30 -20/32 at 1.53% +7 bp and 30 yr MBS prices -6/32 (.18 bp).

At 10:00 the data for the day, April factory orders expected +0.1%, took another dive to -0.6% and March orders were revised to -1.9% frm 1.5% The reaction turned stock indexes down from slight gains. The 10 yr was -20/32, it bounced up to -14/32.

There isn’t a lot of key economic measurements this week; weekly clams and the May ISM services sector lead the headlines. We expect a choppy bond and mortgage markets this week to ease the over-extended move we saw last week. Last Friday’s heavy buying in treasuries looked much like a capitulation from the bond bears after the 10 yr easily broke 1.50%. One media guru was out today conjecturing that the 10 yr could go to 1.00% before the rate markets turn around. We can’t get on board with that however. Although Europe at the moment looks impotent in dealing with the economy and debt problems, it isn’t unreasonable that in the next few months there will be a plan in place that will reduce risk off trades into bonds. If Europe can’t come up with a fix that makes sense in the next few months, the entire EU may come tumbling down in a heap. That isn’t an option so something will have to give In the present stalemates that have grid-locked all of the region.

Spain is Europe’s next big problem

Posted on: May 29th, 2012 by Fred Bohman No Comments

Mortgage rate outlook and market preview for the week starting May 29th 2012.

This is employment week, always a big one for the markets. ADP will report its estimate for private jobs in May on Thursday then the BLS reports the “official;” report on Friday. In the meantime Europe still dominates overall, now Spain is taking the spotlight on concerns Spanish banks are teetering on the edge and need capital infusion in some manner in order to remain solvent. It only gets worse in Europe, Greece is increasingly viewed as leaving the EU with the deciding vote in about two weeks (June 17th).

How low can US interest rates fall? Based on comparisons of some other AAA sovereign yields the US 10 yr note is cheap, trading at 1.73% this morning compared to Germany’s 10 yr bund at 1.346%; the spread .385 bp at 9:30. $ yrs and counting, the US budget deficits have exceeded $1.0T with US debt downgraded by rating agencies and no longer AAA. One of the key drivers for US interest rates is there are better yields here than in Germany, Australia and other better controlled countries. The extra yield investors receive for holding Treasuries is an added benefit for investors seeking a haven from Europe’s sovereign debt turmoil. In the US there is absolutely no incentive for politicians to focus on budgets; neither Democrats or republicans, no matter what comes out of their mouths, our politicians have no interest in actually dealing with excess spending regardless of what you may here from any of them.

Home values in 20 U.S. cities fell in the 12 months ended March at the slowest pace in more than a year as lower borrowing costs and an improving job market gave sales a boost. The S&P/Case-Shiller index of property values fell 2.6% from a year earlier after a 3.5% drop in February.

At 9:30 the DJIA opened +83, NASDAQ +25; 10 yr note +3/32 at 1.73% -1 bp and mortgage prices that were slightly better early were unchanged.

At 10:00 May consumer confidence index from the Conference Board, expected at 69.4, was a lot weaker at 64.9 frm rev’d Apr at 68.7 frm 69.2. Expectations at 77.6 frm 80.4, the present situation at 45.9 frm 51.2. The report on consumers is a lot weaker than what the U. of Michigan consumer sentiment index reported last week. The reaction wasn’t much, the 10 yr note moved up 2/32 in price but the stock market ignored the report.

Probably won’t see much movement in the financial markets through the rest of the day; at least until; 3:00 for the stock market. The final hour in stock trading is generally volatile. The interest rate markets are not likely to improve a whole lot this week until employment on Friday or a significant decline on German 10 yr bunds. Technically the US 10 yr is going to need a large push to move and stay below 1.70%. Mortgage rates are likely to be unchanged through most of this four day week.

European debt mess keeps US mortgage rates low

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

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

Treasuries and mortgage markets opened about unchanged this morning. At 8:30 two data reports; March retail sales, expected up 0.3%, was up 0.8% and ex auto sales +0.8% (ex-autos expected up 0.6%). April Empire State manufacturing index was expected at 17.5 frm 20.2 in March; as reported the overall index plunged to 6.56; new orders component at 6.48 frm 6.84 and the employment component at 19.28 frm 13.58—- over zero is considered expansion, more indication that there is a slowing in the manufacturing sector. The retail sales report is trumping the Empire State data this morning; stock index are better and at 9:00 the 10 yr note, after being up slightly (+3/32) was -1/32 at 2.00%, mortgage prices at 9:00 -2/32 after opening +3/32 prior to the 8:30 data.

Asian stocks fell overnight, with the regional benchmark index headed for its biggest drop in almost two weeks after the cost of insuring against a Spanish default climbed and U.S. consumer confidence dropped last Friday, clouding the earnings outlook for Asia’s exporters. Stocks also fell after five-year credit-default swaps on Spain surged to a record as Prime Minister Mariano Rajoy struggles to prevent the nation from becoming the fourth euro-region member to need a bailout.

European stocks rebounded from four consecutive weeks of losses and U.S. index futures advanced after American retail sales increased more than forecast in March. Spanish bond yields climbed before a debt sale while the euro weakened. Credit-default swaps on Spain jumped 17 basis points to 519. Contracts on Italy rose seven basis points to 441, the highest level in almost three months. Spanish 10-year bond yields jumped as much as 18 basis points, to 6.16%, the highest level since Dec. 1. Five-year credit-default swaps linked to Spanish bonds jumped to an all-time high. Spain will sell 12- and 18-month bills tomorrow, followed by auctions of debt due in October 2014 and January 2022 on April 19.

At 9:30 the DJIA opened +85, the 10 yr note traded unchanged At 1.99% and 3-0 yr MBS prices unchanged.

Although Europe’s debt issues remain, this morning there is a little relaxation about the possibility of default as EU ministers are calling for the ECB to step up and buy Spain’s bonds to keep their interest rates from increasing more. So far nothing from the ECB but words implying it is “prepared” to act if necessary. The US bond market remains the safe port for investors and has been one of the reasons we have seen US rates fall over the last two weeks. US stock market is rallying this morning on the March retail sales increase, US interest rates are not seeing any selling on the better stock indexes; as long as the debt problems in Europe continue it should keep a bid in US treasuries, thus supporting the mortgage markets.

At 10:00 Feb business inventories were expected up 0.5%, as reported inventories increased 0.6%, sales were up 0.7% with an inventory to sale ratio unchanged from Jan at 1.28months. Also at 10:00 the April NAHB housing index, expected at 29 frm 28 in March, fell to 28, the first decline in 7 months; single family index at 26 down from 29. The drop in the NAHB index sparked some increases in bond and mortgage prices. The DJIA off its high, the NASDAQ has been weaker all session so far.

Technically the treasury and mortgage markets remain bullish; the 10 yr so far today is holding a gain as are mortgage prices, but at 9:30 both were flat on the day and now boosted by the NAHB housing mkt index and stock indexes off their best levels. Looks like the 10 yr is headed to 1.90% (at 10:10 1.96% -3 bp today).