Mortgage Rates Tread Lower Following Jobless Claims
Posted 06-17-2010 at 09:12 AM by VictorBurek
Before we get to today’s data, a quick recap of yesterday. Mortgage rates started the day heading in the right direction as stocks started the day in negative terroritory. As the day progressed, stocks started to gain which pulled money away from the fixed income sector. Benchmark treasuries were pressured higher which caused mortgage backed securities to move lower in price. As MBS price fell, a couple lenders who issued rate sheets early, had to reprice worse increasing consumer borrowing costs. The stock lever remains in effect.
Onto the day’s reports… First was the weekly Jobless Claims.
Released by the Department of Labor, this report provides three measures of the health of the job market:
1. Initial Jobless Claims: totals the number of Americans who filed for first time unemployment benefits in the previous week
2. Continued Claims: totals the number of Americans who continue to file for benefits due to an inability to find a new job in the previous week
3. Extended and Emergency Benefits: totals the number of Americans who have exhausted their traditional benefits and are now receiving extended and emergency benefits, in the previous week
Since our economy is driven by consumer spending, market participants track employment data to get a sense of future economic momentum. Higher jobless claims imply less consumers have jobs and therefore less money to spend, which is bad for the overall economy...but generally helpful in keeping consumer borrowing costs low.
Here are the results...
1. Initial Jobless Claims: +12,000 to 472,000 vs forecasts for a print of 450,000. Last week's report was revised higher from 456,000 to 460,000. WORSE THAN EXPECTED
2. Continued Claims: +88,000 to 4.57million vs. forecasts for a read of 4.640 million. BETTER THAN EXPECTED
3. Extended and Emergency Benefits: -169,000 to 5.22million
Jobless claims have fallen from the highs of the recent recession but have been stuck around the current levels all year. This report provided no new trend for jobless claims and continues to indicate that those without a job are finding it very difficult to land new employment. Following the release of this report, MBS have recaptured all of the prior day’s losses.
Released at the same time was the Consumer Price Index which measures inflation on the consumer level. The CPI measures price changes on a fixed basket of goods and services that consumers purchase. Inflation is a high ranking enemy of interest rates. The Federal Reserve has stated over and over that inflation is not a concern today and today's release supported that belief. Yesterday’s PPI report which measures inflation on the producer level was worse than expected(didn’t show as large a decline in prices as expected) but did indicate that deflation is still a bigger concern than inflation.
The report came in right on expectations. Overall consumer prices fell in May 0.2% after falling 0.1% in April, while the core rate which strips out food and energy prices due to their volatility rose 0.1% after last month’s no change. Year over year, overall consumer prices fell from 2.2% in April to 2.0% in May. The core rate has risen 0.9% since last May matching the smallest year over year increase since 1966. Like the PPI report, this data also indicates that deflation remains a bigger concern to our economy than inflation.
Next came the release of May’s Leading Indicators. This is a composite index of 10 economic releases that are believed to be forward looking indicators of business activity. If the month over month change is positive, it indicates the economy is improving. Most of the components of this report have already been released so the market generally has a limited reaction to the news. Today’s data indicated Leading Indicators rose 0.4% matching the forecast of economists.
The final report of the week was the Philadelphia Federal Reserve's Business Conditions Survey. This survey gives market participants a measure of the strength of business conditions in the Philadelphia region. Readings above 0 indicate conditions are improving while readings below 0 indicate business activity is contracting. Recent readings have shown manufacturing in this region to be consistently improving. May’s data rose from 20.2 in April to 21.4, the highest reading in more than 3 years; however, today’s report was extremely disappointing coming in at 8.0, much worse than the 20.0 that was expected and the lowest level since last August.
Finally, the Department of Treasury announced the terms of next week's round of Treasury auctions. When our government does not have enough cash to pay for spending, they borrow funds in the debt market by issuing Treasury bills, notes, and bonds. The added supply of debt on the market can pressure yields and mortgage rates higher, however the ongoing European debt crisis has helped to create a "flight to safety” bid which has helped ease the pressure of new debt supply in the market. The Treasury Department announced they will sell $40billion 2 year notes next Tuesday, $38 billion 5 year notes next Wednesday, and $30 billion 7 year notes next Thursday. These offering amounts are $2billion less for 2 year notes and 5 year notes, and $1billion less of 7 year notes than the prior auction of similar securities. Less supply of debt is positive news for treasury yields and mortgage rates.
Reports from fellow mortgage professionals indicate lender rate sheets to be improved by about .25 in discount. The par 30 year conventional rate mortgage continues to hold in the 4.50% to 4.75% range for well qualified consumers. To secure a par interest rate on a conventional mortgage you must have a FICO credit score of 740 or higher, a loan to value at 80% or less and pay all closing costs including an estimated one point loan origination/discount/broker fee. You may elect to pay less in costs but you will have to accept a higher interest rate.
So far this morning, MBS are improving in price thanks to higher jobless claims and weak Philly Fed survey. If stocks move lower today, we will probably see continued improvement and maybe even a reprice for the better. Do not expect to see par rate move lower but your costs can improve. With rates only a .25 of a discount away from the best levels of 2010, I continue to find it difficult to not recommend locking. If you are within 30 days of closing, consider locking at the end of day or if you see the stock market shift course and turn positive. The only loans I would consider floating are ones that are a day away from a shorter lock period which offers better pricing
Onto the day’s reports… First was the weekly Jobless Claims.
Released by the Department of Labor, this report provides three measures of the health of the job market:
1. Initial Jobless Claims: totals the number of Americans who filed for first time unemployment benefits in the previous week
2. Continued Claims: totals the number of Americans who continue to file for benefits due to an inability to find a new job in the previous week
3. Extended and Emergency Benefits: totals the number of Americans who have exhausted their traditional benefits and are now receiving extended and emergency benefits, in the previous week
Since our economy is driven by consumer spending, market participants track employment data to get a sense of future economic momentum. Higher jobless claims imply less consumers have jobs and therefore less money to spend, which is bad for the overall economy...but generally helpful in keeping consumer borrowing costs low.
Here are the results...
1. Initial Jobless Claims: +12,000 to 472,000 vs forecasts for a print of 450,000. Last week's report was revised higher from 456,000 to 460,000. WORSE THAN EXPECTED
2. Continued Claims: +88,000 to 4.57million vs. forecasts for a read of 4.640 million. BETTER THAN EXPECTED
3. Extended and Emergency Benefits: -169,000 to 5.22million
Jobless claims have fallen from the highs of the recent recession but have been stuck around the current levels all year. This report provided no new trend for jobless claims and continues to indicate that those without a job are finding it very difficult to land new employment. Following the release of this report, MBS have recaptured all of the prior day’s losses.
Released at the same time was the Consumer Price Index which measures inflation on the consumer level. The CPI measures price changes on a fixed basket of goods and services that consumers purchase. Inflation is a high ranking enemy of interest rates. The Federal Reserve has stated over and over that inflation is not a concern today and today's release supported that belief. Yesterday’s PPI report which measures inflation on the producer level was worse than expected(didn’t show as large a decline in prices as expected) but did indicate that deflation is still a bigger concern than inflation.
The report came in right on expectations. Overall consumer prices fell in May 0.2% after falling 0.1% in April, while the core rate which strips out food and energy prices due to their volatility rose 0.1% after last month’s no change. Year over year, overall consumer prices fell from 2.2% in April to 2.0% in May. The core rate has risen 0.9% since last May matching the smallest year over year increase since 1966. Like the PPI report, this data also indicates that deflation remains a bigger concern to our economy than inflation.
Next came the release of May’s Leading Indicators. This is a composite index of 10 economic releases that are believed to be forward looking indicators of business activity. If the month over month change is positive, it indicates the economy is improving. Most of the components of this report have already been released so the market generally has a limited reaction to the news. Today’s data indicated Leading Indicators rose 0.4% matching the forecast of economists.
The final report of the week was the Philadelphia Federal Reserve's Business Conditions Survey. This survey gives market participants a measure of the strength of business conditions in the Philadelphia region. Readings above 0 indicate conditions are improving while readings below 0 indicate business activity is contracting. Recent readings have shown manufacturing in this region to be consistently improving. May’s data rose from 20.2 in April to 21.4, the highest reading in more than 3 years; however, today’s report was extremely disappointing coming in at 8.0, much worse than the 20.0 that was expected and the lowest level since last August.
Finally, the Department of Treasury announced the terms of next week's round of Treasury auctions. When our government does not have enough cash to pay for spending, they borrow funds in the debt market by issuing Treasury bills, notes, and bonds. The added supply of debt on the market can pressure yields and mortgage rates higher, however the ongoing European debt crisis has helped to create a "flight to safety” bid which has helped ease the pressure of new debt supply in the market. The Treasury Department announced they will sell $40billion 2 year notes next Tuesday, $38 billion 5 year notes next Wednesday, and $30 billion 7 year notes next Thursday. These offering amounts are $2billion less for 2 year notes and 5 year notes, and $1billion less of 7 year notes than the prior auction of similar securities. Less supply of debt is positive news for treasury yields and mortgage rates.
Reports from fellow mortgage professionals indicate lender rate sheets to be improved by about .25 in discount. The par 30 year conventional rate mortgage continues to hold in the 4.50% to 4.75% range for well qualified consumers. To secure a par interest rate on a conventional mortgage you must have a FICO credit score of 740 or higher, a loan to value at 80% or less and pay all closing costs including an estimated one point loan origination/discount/broker fee. You may elect to pay less in costs but you will have to accept a higher interest rate.
So far this morning, MBS are improving in price thanks to higher jobless claims and weak Philly Fed survey. If stocks move lower today, we will probably see continued improvement and maybe even a reprice for the better. Do not expect to see par rate move lower but your costs can improve. With rates only a .25 of a discount away from the best levels of 2010, I continue to find it difficult to not recommend locking. If you are within 30 days of closing, consider locking at the end of day or if you see the stock market shift course and turn positive. The only loans I would consider floating are ones that are a day away from a shorter lock period which offers better pricing
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