Archive | December 2016

Dec 20 2016

MBS are down -4/32 (FNMA 30-yr 3.5 at 101.11), around 1/32 lower than yesterday at this time. Favorable repricing took place yesterday.

This morning, the Bank of Japan (BOJ) made no policy changes, and there was little reaction in global markets. The BOJ revised upward its economic outlook, partly due to stronger exports. The Dow is up 100 points. No economic data will be released today.

Market Update 12/19/2016

MBS are up +13/32 (FNMA 30-yr 3.5 at 101.17), around 5/32 above morning levels, and near the high for the day. Favorable repricing was seen. MBS began the day in positive territory and then moved higher after it was reported that the Russian ambassador to Turkey had been shot. Investors reacted by purchasing safer assets such as MBS. MBS prices then fell back to morning levels when Fed Chair Yellen said that the labor market is the strongest that it has been in almost a decade. Reports of another violent incident, a truck driven into a Christmas market in Germany, caused MBS to climb to new highs this afternoon. The Dow is up 40 points. Early tomorrow, there will be a meeting of the Bank of Japan which could influence U.S. MBS prices. No economic data will be released.

SPECIAL FED ALERT

Special Update: Fed Meeting

As widely expected, the Fed raised the federal funds rate by 25 basis points. Unfortunately for MBS, Fed officials also raised their projections for the pace of rate hikes in 2017 due to “realized and expected labor-market conditions and a return to 2% inflation.” The faster that the Fed raises rates, the sooner it is expected that the Fed will reduce its holdings of MBS. Reduced demand for MBS is negative. In addition, the statement noted that market-based measures of wage inflation had increased “considerably”, which also is bad for MBS.

Market Update 12/14/2016

MBS are up +4/32 (FNMA 30-yr 3.5 at 102.10), around 1/32 higher than yesterday at this time. Unfavorable repricing took place yesterday.

MBS are a little higher this morning following the release of mixed economic data. November Retail Sales rose 0.1% from October, well below the consensus for an increase of 0.4%. Excluding the volatile transportation component, Retail Sales ex-Auto also rose just 0.1%, well below the consensus of 0.4%. The October results were revised lower for both readings as well. November Industrial Production fell 0.4% from October, below the consensus for a decrease of just 0.2%. The November PPI inflation data was stronger than expected, as Core PPI was 1.6% higher than a year ago, up from 1.2% last month. The Dow is down 25 points. No more economic data will be released today. The announcement from the Fed meeting will come out at 2:00 et, and Fed Chair Yellen’s press conference will begin at 2:30 et. It is widely expected that the Fed will raise the federal funds rate, so investors mainly will be looking for guidance about the pace of future tightening.

Market Update 12/12/2016

MBS are down -6/32 (FNMA 30-yr 3.5 at 101.31), around 16/32 lower than Friday at this time. Unfavorable repricing took place Friday.

An increase in oil prices has hurt MBS this morning. An OPEC deal caused oil prices to reach the highest levels since July 2015. The Dow is up 50 points. No economic data will be released today. The results from the 3-yr Treasury auction will come out around 11:30 et and the 10-yr Treasury auction around 1:00 et.

The monthly rollover took place overnight for FNMA and FHLMC 30-yr securities. The current coupon switched from the December to the January contract. If you are tracking daily MBS price movements, January MBS prices reflected a drop of about -6/32 from December. This change is priced in over the course of the month, so the impact on mortgage rates on the day of the rollover is generally no greater than on any other day of the month.

Market Update 12/08/2016

MBS are down -7/32 (FNMA 30-yr 3.5 at 102.21), around 1/32 higher than yesterday at this time. Favorable repricing took place yesterday. Early investors may have priced at a wide range of levels.

It has been a volatile morning following the European Central Bank (ECB) meeting. As expected, the ECB extended its bond purchase program. Originally set to expire in March, the program now will continue through December. The big surprise was that the monthly purchases will decrease from $80 billion euros to $60 billion euros beginning in April. ECB President Draghi said that the ECB could extend the program again or increase the level of monthly purchases if economic conditions justify it. The reduction in the level of stimulus removed some expected future demand for bonds, causing bond yields around the world to move higher this morning. In the U.S., weekly Jobless Claims fell to 258K, which was close to the consensus. The Dow is up 25 points. No more economic data will be released today.

Daily Update for 12/7/2016

MBS are up +9/32 (FNMA 30-yr 3.5 at 102.28), around 8/32 above morning levels, and near the high for the day. Favorable repricing took place. Both stocks and bonds rallied today on little news. The most likely explanation is that investors expect favorable news about additional stimulus from the European Central Bank (ECB) tomorrow. In recent years, central bank stimulus has boosted both stocks and bonds. The JOLTS report showed that job openings in October fell to 5.53M from an upwardly revised reading of 5.63M in September. The Dow is up nearly 300 points to a record high. Tomorrow, the ECB meeting announcement will come out at 7:45 et, and it will be followed by a press conference with the head of the ECB. In the U.S., Jobless Claims will be released at 8:30 et.

Week in review

Last Week’s Economic News in Review December 7, 2016
Unemployment enjoyed an unexpected drop, while layoffs increased, but remained in safe territory. Meanwhile, construction spending grew, particularly in the residential category.

Unemployment

The U.S economy added 178,000 jobs in November, pushing the unemployment rate down to 4.6 percent, according to last week’s report from the Bureau of Labor Statistics. This marked a 0.3 percent drop from the 4.9 percent unemployment rate of October, which the market had expected to continue into last month. The number of unemployed Americans declined by 387,000 to 7.4 million.

The number of people unemployed for 27 weeks or longer — the so-called long-term unemployed — saw barely any change, totaling 1.9 million, which accounted for 24.8 percent of the unemployed population. Over the past 12 months, long-term unemployment has ticked down by 198,000 people. November’s civilian labor force participation rate — the percentage of employable Americans either employed or looking for a job — saw little change at 62.7 percent.

The number of people involuntarily employed on a part-time basis in November for reasons such as that was the only work they could find or their hours had been cut totaled 5.7 million, which was similar to October. That said, the population of involuntary part-time workers was down by 416,000 for the year.

Initial Jobless Claims

First-time claims for unemployment benefits filed by the recently laid off during the week ending November 26 jumped to 268,000, a gain of 17,000 claims from the previous week’s total of 251,000, the Employment and Training Administration reported.

The four-week moving average — considered a more stable measure of layoffs — ticked up to 251,500, a slight increase of 500 from the previous week’s average of 251,000.

This marked the 91st consecutive week of initial jobless claims below 300,000, a level that economists consider an indicator of a growing job market. That’s the longest streak since 1970.

Construction Spending

Construction spending for October notched up to an annual rate of $1.17 trillion, which was 0.5 percent over September’s pace of $1.16 trillion, the Census Bureau reported last week. Compared to last year, October’s total was 3.4 percent higher than October 2015’s rate of $1.13 trillion.

Spending on private construction for October dipped to an annual rate of $885.9 billion, which was 0.2 percent below September’s revised rate of $887.4 billion. However, spending on residential construction grew to an annual rate of $466.2 billion in October, which was 1.6 percent over September’s pace of $458.8 billion.

This week we can expect:

  • Tuesday — Third quarter productivity from the Bureau of Labor Statistics; October trade balance and October factory orders from the Census Bureau.
  • Wednesday — Consumer credit for October from the Federal Reserve.
  • Thursday — Initial jobless claims for last week from the Employment and Training Administration.
  • Friday — Wholesale inventories for October from the Census Bureau.