Tuesday, June 9, 2015 - Article by: Bart Castelli - Homestar Financial Corporation NMLS #70864 -
There still is no appetite for bond buying. Although the market is set for a bounce it will take weak economic news to see any bounce now. This morning the April wholesale inventories increased slightly better than expected, that it was better is only half the story. Inventories are below a giant 1.6% surge in sales. April sales were disappointing, unchanged from March. Sales in May and May PPI on Friday are weighing now on the bond markets.
Much talk about when the Fed will increase rates, as it is key to the markets, the economy and global markets. Data dependent is what Yellen and most all Fed officials continue point out on the timing of an increase. Where many domestic investors and certainly in the mortgage arena where we operate seem to ignore that Yellen also has made it explicitly clear that she is concerned about a rate hike here that may destabilize other global markets. Global markets don't look very solid, China announcing today it will reduce oil imports, not a confidence builder.
There was a little positive today with the $24B 3yr note auction as it met with fairly good demand. When the results were announced the bond and MBS markets improved somewhat but then fell back to lows (prices) and the 10yr yield jumped back to 2.42%. Mortgage rates continue to take a beating.
Tomorrow there is no driving data. The $21B 10yr auction at Noon will be tomorrow's key. Thursday is the day this week, as we get May retail sales, April business inventories, May import and export prices. Until we see that data there is little likelihood that rate markets will move much.
This Greece mess is nowhere close to any resolution. EU, IMF, ECB and EC are getting more than frustrated with Greek politicians trying to make a purse out of a sow's ear. It is getting testy in terms of comments from creditors. If global markets finally believe letting Greece go will not blow up the EU or global markets then Greece is cooked. Greece has refused every offer presented on the excuse Greece citizens cannot afford it - it is more that Greek politicians are finding it impossible to meet the promises they made at the recent elections. The last survey we saw was that Greek citizens want to stay in the EU.
In summary, the new target remains at 2.50% (as much as I hate to say this) for the 10yr before a possible bounce, although any bounce now will not be much. Retail sales on Thursday are the key for rates now, however the FOMC meets next week and that hangs heavily over rate markets. Borrowers should continue to play defense here as risks continue to be very high. We do not have any reliable clues that rates may pause or go lower in either the short, medium, or long term. That means locking your loan at the first opportunity to protect the pricing in front of you right now is probably prudent.
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