MBS are up +11/32 (FNMA 30-yr 3.0 at 103.11), around 12/32 higher than yesterday at this time. Early investors may have priced at a range of levels.
MBS began the session with large gains, as bond yields in Europe moved lower. Core inflation in the Eurozone declined. A shortfall in today’s US GDP data (see below) provided another small boost. Chicago PMI manufacturing rose to 59.4, above the consensus of 58.0. The Dow is down 25 points. Consumer Sentiment will be released at 10:00 et.
The first reading for fourth quarter GDP, the broadest measure of economic activity, showed an annual growth rate of 2.6% during the fourth quarter, below the consensus of 3.2%. This was down from 5.0% growth during the third quarter. For all of 2014, GDP increased 2.4%. The performance of the key components of GDP were mixed during the fourth quarter. Consumer spending was a bright spot, rising at the fastest pace in almost nine years. Business investment was weak, however, and exports were hurt by the stronger dollar.
MBS are down -3/32 (FNMA 30-yr 3.0 at 102.31), close to morning levels. It was a volatile session for both stocks and bonds, as a variety of headlines had an effect today. This morning, Jobless Claims were much stronger than expected, and then Pending Home Sales fell far short. Pending Home Sales declined 3.7%, below the consensus for an increase of 0.5%. Midday, the results for the storm-delayed 5-year Treasury auction were a little stronger than average. The 7-yr auction then saw weaker than average demand. Reports of progress in talks between Greek officials and EU officials also caused some volatility. The Dow is up 225 points. Tomorrow, the first reading for fourth quarter GDP will be released at 8:30 et. The consensus is for an increase of 3.2%. In addition, Chicago PMI and Consumer Sentiment will be released.
Mortgage rates fell again today, and while the move wasn’t big, it was enough to bring most lenders back in line with the best rates from two weeks ago. Those have the added distinction of being the best rates since May 2013. At these levels, 3.625% is widely available as a top tier conforming 30yr fixed quote and a few lenders are quoting 3.5%. Even if your lender isn’t, you can likely choose to pay higher upfront costs in exchange for the lower rate. This is neither good nor bad, but simply a matter of personal preference. You can divide the upfront cost increase by the monthly payment savings to determine how many months it would take to break even on the additional expense. If the trade-off makes sense to you, it makes sense. If not, stick with the higher rate.