Tuesday, December 9, 2014 - Article by: Bart Castelli - Homestar Financial Corporation NMLS #70864 -
The bond and mortgage markets opened nicely early this morning on a very weak open in the US stock market. The 10yr is at 2.21% at 10:30AM this morning after dropping .05% yesterday. Mortgage Backed Securities are also up nicely as well.
The US equity market following the decline in all global markets that was kicked off last night with China; its stock market had its largest loss in five years when the government announced it would end the issuance of bonds by local governments. All riskier bonds were hit hard and led to the stock market fall. China's economic outlook continues to deteriorate, as is also the case for Europe and India. The take away from China's move to tighten credit is speculation that it may weaken its economy even more than it is now. In Greece, another concern - the government is going to move forward a parliamentary vote for its president - worries about instability in the country.
Maybe US markets are realizing that the US economy is not large enough to carry the entire civilized world on our backs. Also bothering the stock market this morning, the WSJ has an article on the front page this morning that the Fed at its meeting next week will remove that phrase "for a considerable period of time" about when it will begin increasing rates. The FOMC meets next week (Dec 16th and 17th) and Janet Yellen will hold a press conference after the meeting. The WSJ article references comments from Stanley Fischer, vice chair and Wm. Dudley, NY Fed. Last week Fischer said "It's clearer that we're closer to getting rid of that than we were a few months ago." Bill Dudley has taken away his use of "considerable period" from his recent speeches. The meeting next week, according to the WSJ, will be a serious debate about any new phrasing in the policy statement when it hits next Wednesday. How to walk the line without tripping over its own words is the problem facing the Fed now.
Two reports today, neither of much direct importance. Today in US markets its abut global equity market declines led by China's worst decline since 2009. Crude oil is continuing to weigh on investors; is the fall in price primarily due to excess supply, or a big decline in demand that would suggest consumers remain reticent, or the more likely a combination of both ; the report card on that will come soon when the Christmas sales are tallied up. The rapid decline in the price of oil is likely to stabilize soon; maybe today, it is too bearish now. Crude is a commodity; in the world of commodities it is not unusual ( in fact it is more the norm) that prices exceed reality on major moves. Commodity trading is mostly in futures markets, it is easier to over-run the legitimate price whether its soybean or pork bellies, cotton or any other commodity. We have crude on high watch now; a significant turn will work against the bond and mortgage markets when it begins----and we are getting close.
We are floating, we also have our finger on the trigger. Technicals all bullish - our primary concern is that at these levels of rates it will be a big hill to climb for rates to move a lot lower. We will continue to float as long as we can. The 10yr note (and we don't care about the MBS market) has hard support at 2.34% and hard resistance at 2.15% - a wide range that is likely to hold the 10yr in check through the end of the year. Trading in MBSs now is best left to those that close their own loans and can profit on small movements, the market volatility is going to increase through the end of the year.
Remember, if you want to know the benefits of locking your rate today versus floating, simply give me a call at 314-744-7806 or visit my website at www.CallTheMoneyMan.com. I have access to real time Wall Street data and instant market alerts with breaking news that I monitor throughout the day to assist us on making the informed decision.
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