Mortgage Rates Take a Step Back
Posted 11-10-2010 at 08:22 AM by VictorBurek
Tough day in the interest rates markets yesterday. No economic data hit the news wires, but market participants had a 10 year treasury note auction to digest. The results of the auction were rather poor with much lower demand from investors and the lowest since February. Following the release of the results more selling occurred in the bond market which forced lenders to reprice for the worse. Some even repriced for the worse a couple times as the losses snowballed into close.
We have two economic reports hitting the news wires this morning. The Department of Commerce released the International Trade report. Trade balance data reports the difference between the monetary value of a country's exports and imports. A positive balance, or trade surplus, means exports exceed imports and illustrates that a country's economy is globally competitive. A negative balance of trade is known as a trade deficit or trade gap. The US currently runs a trade deficit. This report in general does not have a huge impact on the bond market.
This report has a two month lag, so today’s data covered September Trade Balance. The report indicated our trade deficit narrowed from a revised $46.5 billion in August to $44.0 billion in September, better than the expectations of a trade deficit of $45.5 billion. Imports fell 1.0% while exports rose 0.3% to a two year high.
Released at the same time was the weekly Jobless Claims. Due to Veteran’s Day, this report is being released today rather than on Thursday. From the Department of Labor, this report tracks the number of Americans that filed for first time unemployment benefits in the prior week. Since our economy is driven by consumer spending, higher jobless claims indicates consumers will have less money to spend which is bad for corporate profits and stocks but generally helpful in keeping interest rates low. This report gives us three measures of unemployment claims:
- Initial Jobless Claims: totals the number of Americans who filed for first time unemployment benefits in the previous week
- Continued Claims: totals the number of Americans who continue to file for benefits due to an inability to find a new job
- Extended and Emergency Benefits: totals the number of Americans who have exhausted their traditional benefits and are now collecting extended and emergency benefits which can last as long as 99 weeks
Here are the results:
- Initial Jobless Claims: -24,000 to 435,000 vs estimates of 450,000. This is the lowest amount of initial claims in four months. Prior week revised worse to show an additional 2,000 claims.
- Continued Claims: -86,000 to 4.301million vs. estimates for a print of 4.33million.
- Extended and Emergency Benefits: -286,000 to 4.73million
At 1pm, the Department of Treasury will announce the results of today’s auction of $16billion of 30 year bonds. If demand is weak, treasury yields and mortgage rates will continue to be pressured higher.
At 2pm, the Federal Reserve will announce the QEII purchase schedule. I am optimistic that once market participants know what and when the Fed will buy, we will see some money flow back into bonds. Already this morning, mortgage backed securities have recaptured some of the losses from yesterday.
Lender rate sheets are similar to yesterday’s repriced sheets. The par 30 year conventional rate mortgage has risen to the 4.125% to 4.375% range for well qualified consumers. To be considered well qualified, you must have a FICO credit score of 740 or higher. Lower FICO scores will either have to pay more fees due to Loan Level Price Adjusters or accept a higher interest rate. To secure a par interest rate you must be willing to pay all closing costs including an estimated one point loan origination/discount/broker fee. If you are keeping your home for less than 3 years you should consider a no cost loan. On a no cost loan, you have to take a higher interest rate and the loan originator pays your closing costs for you. No cost loans are in the 4.625% to 4.875% range.
Currently MBS are at the bottom of our range. Float the lows, lock the highs. However, it is risky floating in today’s environment so make sure you stay in contact with your mortgage professional. I am expecting to see some kind of rebound rally. MBS have given up a lot over the last 2 days and are ripe for some kind of correction.
In observance of Veteran’s day, the bond markets will be closed tomorrow and no economic data will be released.
We have two economic reports hitting the news wires this morning. The Department of Commerce released the International Trade report. Trade balance data reports the difference between the monetary value of a country's exports and imports. A positive balance, or trade surplus, means exports exceed imports and illustrates that a country's economy is globally competitive. A negative balance of trade is known as a trade deficit or trade gap. The US currently runs a trade deficit. This report in general does not have a huge impact on the bond market.
This report has a two month lag, so today’s data covered September Trade Balance. The report indicated our trade deficit narrowed from a revised $46.5 billion in August to $44.0 billion in September, better than the expectations of a trade deficit of $45.5 billion. Imports fell 1.0% while exports rose 0.3% to a two year high.
Released at the same time was the weekly Jobless Claims. Due to Veteran’s Day, this report is being released today rather than on Thursday. From the Department of Labor, this report tracks the number of Americans that filed for first time unemployment benefits in the prior week. Since our economy is driven by consumer spending, higher jobless claims indicates consumers will have less money to spend which is bad for corporate profits and stocks but generally helpful in keeping interest rates low. This report gives us three measures of unemployment claims:
- Initial Jobless Claims: totals the number of Americans who filed for first time unemployment benefits in the previous week
- Continued Claims: totals the number of Americans who continue to file for benefits due to an inability to find a new job
- Extended and Emergency Benefits: totals the number of Americans who have exhausted their traditional benefits and are now collecting extended and emergency benefits which can last as long as 99 weeks
Here are the results:
- Initial Jobless Claims: -24,000 to 435,000 vs estimates of 450,000. This is the lowest amount of initial claims in four months. Prior week revised worse to show an additional 2,000 claims.
- Continued Claims: -86,000 to 4.301million vs. estimates for a print of 4.33million.
- Extended and Emergency Benefits: -286,000 to 4.73million
At 1pm, the Department of Treasury will announce the results of today’s auction of $16billion of 30 year bonds. If demand is weak, treasury yields and mortgage rates will continue to be pressured higher.
At 2pm, the Federal Reserve will announce the QEII purchase schedule. I am optimistic that once market participants know what and when the Fed will buy, we will see some money flow back into bonds. Already this morning, mortgage backed securities have recaptured some of the losses from yesterday.
Lender rate sheets are similar to yesterday’s repriced sheets. The par 30 year conventional rate mortgage has risen to the 4.125% to 4.375% range for well qualified consumers. To be considered well qualified, you must have a FICO credit score of 740 or higher. Lower FICO scores will either have to pay more fees due to Loan Level Price Adjusters or accept a higher interest rate. To secure a par interest rate you must be willing to pay all closing costs including an estimated one point loan origination/discount/broker fee. If you are keeping your home for less than 3 years you should consider a no cost loan. On a no cost loan, you have to take a higher interest rate and the loan originator pays your closing costs for you. No cost loans are in the 4.625% to 4.875% range.
Currently MBS are at the bottom of our range. Float the lows, lock the highs. However, it is risky floating in today’s environment so make sure you stay in contact with your mortgage professional. I am expecting to see some kind of rebound rally. MBS have given up a lot over the last 2 days and are ripe for some kind of correction.
In observance of Veteran’s day, the bond markets will be closed tomorrow and no economic data will be released.
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