Monday, February 23, 2015 - Article by: Bart Castelli - Homestar Financial Corporation NMLS #70864 -
Very quiet today compared to the intraday volatility last week. The MBS market price changed very little since the open this morning as I gather the roller coaster was not out today. From my report this morning, the 10yr did decrease to 2.06%, another 3BPS. Today's only data point, January existing home sales were softer than expected. It cannot be blamed on the harsh weather in the East and Mid-west, most of the decline in sales came from the west region. Blame remains on less inventory as the lack of inventory has been the reason for slow sales.
This week has plenty for bond traders to absorb. Janet Yellen's testimony tomorrow, Wednesday's $90B of Treasury borrowing, and a number of key economic measurements. Tomorrow Yellen will go to the Senate Banking Committee the Wed to the House Financial Services Committee. With most now holding to a June increase for the initial lift-off increases in the FF rate. Surely we can expect numerous questions from politicians on why and when and her specifics about why the Fed is sure now the economy has turned the corner when in the past (the last 18 months) each quarter the Fed has lowered its previous economic outlook. This time she will go before Republican chairs in the two committees. A lot of talk that employment is now the Fed's general target, not much discussion though about the quality of most of those jobs.
Tomorrow beside Yellen, the Case/Shiller 20 city home price index will get some ink but as we have mentioned I do not put too much emphasis on the report, its dated and focuses only on 20 markets. The February consumer confidence index from the Conference Board also is on tap in the morning.
How much a factor for equities is on crude price movement? More than you realize, crude is mostly flat-lining recently trying to build a foundation in the $50.00 area. When crude trades under $50.00 stock traders appear to back away. Today crude down under $50.00, stock indexes slightly lower.
In summary, nothing has changed - the bond and mortgage markets are vulnerable to further selling based on traders' activity in the very near term. I still believe rates will have another short run to lower rates - the timing and from what levels is uncertain so as I always do, go with how markets are acting rather than what I believe. Economists believe everything they say as gospel, traders and investors have to focus on timing. There is little reason to bet on lower rates, declines in rates are not likely to be much and the risk of gambling on a few basis points improvement does not warrant consumers to take the risk now. Do the deal now - it takes a substantial decline in mortgage rates to make any significant difference in monthly payments.
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