Not much going on today. Good news is Dow -150. Why I say GOOD? When stocks are down, normally its a good sign for mortgage rates but a Bad sign for the economy.
MBS are up +1/32 (FNMA 30-yr 3.5 at 102.02), around 3/32 higher than Friday at this time.
This morning, the December Core PCE price index increased 0.1% from November, below the consensus of 0.2%, and it was 1.7% higher than a year ago. December Personal Income rose 0.3% from November, below the consensus for an increase of 0.4%. The Dow is down 150 points. Pending Home Sales will be released at 10:00 et.
MBS are up +12/32 (FNMA 30-yr 3.5 at 102.13), around 7/32 above morning levels, and near the high for the day. Favorable repricing took place. MBS rallied nicely this morning and held the gains through the afternoon. No economic data was released today. A few factors likely helped MBS. Weaker than expected European economic data was good for global bond markets. In addition, uncertainty about U.S. trade policies under the Trump administration increased demand for safer assets such as MBS. Finally, there were reports of unusually strong demand for bonds from hedge funds seeking to offset short positions. The Dow is down 25 points. Tomorrow, Existing Home Sales will be released at 10:00 et. The results from the 2-yr Treasury auction will come out around 1:00 et.
MBS are down -4/32 (FNMA 30-yr 3.5 at 101.31), around 19/32 lower than yesterday at this time. Unfavorable repricing took place yesterday.
It has been a volatile morning after a European Central Bank (ECB) meeting and a batch of U.S. economic data. There were no policy changes and no surprises from the ECB today. In the U.S., December Housing Starts jumped 11% to an annual rate of 1.23M, above the consensus of 1.20M. Weekly Jobless Claims dropped to 234K, below the consensus of 255K. The Philly Fed regional manufacturing index rose to 23.6, above the consensus of 16.0. MBS moved lower following the stronger than expected data. The Dow is down 5 points. No more economic data will be released today.
This morning, the Fed’s Kaplan expressed support for tighter monetary policy due to progress in meeting the Fed’s labor market and inflation goals. Of note for MBS, he thinks that the Fed is getting close to the appropriate time to begin to consider a reduction in the Fed’s large holdings of MBS and Treasuries. The Fed currently reinvests to hold its portfolio steady, and a change in this policy would reduce the demand for MBS. The prospect that this change may take place sooner than expected hurt MBS. This afternoon, Fed Chair Yellen said that she expects the Fed to raise the federal funds rate gradually until it reaches 3.00% by the end of 2019. This was a faster pace than many investors had expected, and Yellen’s comments pushed MBS a little lower late in the session.
MBS are down -7/32 (FNMA 30-yr 3.5 at 102.18), around 6/32 lower than yesterday at this time.
MBS have given back some of yesterday’s gains this morning. Today’s economic data (see below) came in very close to expectations and had little impact. The Dow is down 50 points. NAHB Housing will be released at 10:00 et.
December CPI increased 0.3% from November, matching the consensus. CPI was 2.1% higher than a year ago. Core CPI, which excludes food and energy, rose 0.2% from November, also matching the consensus. Core CPI was 2.2% higher than a year ago, up from 2.1% last month. December Industrial Production came in close to expectations including revisions.
MBS are up +12/32 (FNMA 30-yr 3.5 at 102.24), around 8/32 higher than Friday at this time. Unfavorable repricing took place Friday.
MBS have begun the week with nice gains due to a variety of factors. Global stock markets are lower and bond markets are higher. In the U.S., the Empire State regional manufacturing index fell to 6.5, below the consensus of 8.0. The Fed’s Dudley suggested that inflation is low so the Fed will be slow to tighten monetary policy, which was good for MBS. The Dow is down 60 points. No more economic data will be released today. There will be Fed speakers every day this week.
MBS are down -5/32 (FNMA 30-yr 3.5 at 102.19), a little below earlier morning levels, but 5/32 above the low for the day. First unfavorable and later favorable repricing took place. It was a volatile session. Stronger than expected PPI inflation data hurt MBS this morning. Consumer Sentiment fell to 98.1, a little below the consensus of 98.5. The component of the report which looks at the outlook for inflation from consumers was a good deal higher this month. The Dow is down 5 points. For the week, MBS rose about 1/32.
Looking ahead, additional information about policy changes under the Trump administration could continue to affect mortgage rates. The Consumer Price Index (CPI), a widely followed monthly inflation report, will come out on Wednesday. CPI looks at the price change for goods and services which are purchased by consumers. Industrial Production, an important indicator of economic activity, also will be released on Wednesday. Housing Starts will come out on Thursday. The next European Central Bank meeting also will take place on Thursday and could influence U.S. markets. Mortgage markets will be closed on Monday in observance of Martin Luther King Jr. Day.
MBS are up +6/32 (FNMA 30-yr 3.5 at 102.28), around 3/32 above morning levels, but 4/32 below the high for the day. Favorable repricing took place. No economic data was released today. The first speech since the election from President-elect Trump was negative for some stocks. Investors shifted assets to bonds, lifting MBS this morning. Stronger than average demand for the 10-yr Treasury auction later pushed MBS to their highs. However, stocks moved higher and MBS lost some of their gains late in the day. The Dow is up 100 points. Tomorrow, Jobless Claims and Import Prices will be released at 8:30 et. The results from the 30-yr Treasury auction will come out around 1:00 et.
MBS are up +17/32 (FNMA 30-yr 3.5 at 102.26), around 10/32 above morning levels, and near the high for the day. Favorable repricing took place. Despite stronger than expected economic activity and inflation data in today’s ISM Services report, MBS prices rallied strongly (see below). The Dow is down 40 points. Tomorrow, the key Employment report will be released at 8:30 et. The consensus is for an increase of 175K jobs in December. In addition, the Trade Balance and Factory Orders will be released.
The rally in MBS prices which began after yesterday’s release of the Fed Minutes accelerated today. It likely was part of a bigger picture movement in bond yields. From the presidential election until the last couple of days of the year, there was sustained upward momentum in yields, and this kept many potential bond buyers on the sidelines. Investors then seem to have waited until one final major risk, the Fed Minutes, were out of the way. When there were no surprises in the Minutes, investors finally felt comfortable purchasing bonds. Today, the rush to buy intensified, as some investors may have wanted to avoid the risk that tomorrow’s release of the important Employment data could push yields lower.
Freddie Mac reported that average mortgage rates fell in the week through January 5, with 30-yrs hitting 4.20%, from 4.32% the prior week.