One of the most well followed websites in the mortgage industry that employers within Real Estate follow is ThinkBigWorkSmall. One of the best market trackers that I have seen is within their membership, and it’s called Rate Tracker. They send out daily and sometimes hourly reports of how the bond market is competing and since mortgage rates follow the bond market directly, we mortgage advisers find a benefit in watching it while trying to advise our borrowers on strategies to lock. It makes us loan officers money, and saves borrowers money, because we are able to make more calculated risks when locking interest rates.
Today was a good day for the economy, and that means, not so good for rates. Here was the Rate Track from ThinkBigWorkSmall this morning:
Prior to 8:30 this morning the interest rate markets were improving with nice price gains across the curve as well as mortgage prices. At 8:30 however, economic data hit that was better than had been forecast. Start with Sept retail sales, expected to be up 0.4%, increased 0.6% with auto sales removed up 0.4%; auto and truck sales were largely expected to be flat but the data implies better sales of autos and trucks. Next up at 8:30; Sept CPI,expected to be +0.2% overall and +0.1% when food and energy are removed, CPI increased just 0.1% with the core at unchanged; yr/yr the CPI +1.1%, ex food and energy +0.8% yr/yr. The cost of living in the U.S. rose less than forecast in September, indicating limited consumer demand is making it difficult for companies to raise prices. Meanwhile, while the data was being released Fed chief Ben Bernanke was speaking on the Fed’s concerns that inflation is too low; he pointed out that for decades central bankers were battling inflation, now the Fed believes inflation is too low and potential leading to deflation. More at 8:30 this morning; a huge improvement in manufacturing in the NY State manufacturing index;the overall index was thought to be up to 6.0 frm 4.1 in Sept, it exploded to 15.73. The sub-components were also very strong; new orders jumped to 12.90 frm 4.33, employment index increased to 21.67 from 14.93 and prices received increased to 8.33 frm 1.49. Any index reading over zero is considered expansion.
Prior to the 8:30 data the 10 yr note was up 10/32, 30 yr mortgages up 11/32 (.34 bp). By 8:45 the 10 yr was unchanged and mortgage prices fell back to a 2/32 gain (.06 bp).Bernanke was still speaking but by 8:45 most of his prepared text had been read and dissected. He said the long term weak employment will be detrimental to economic recovery and keep spending lower than needed to keep the recovery going. Inflation is too low to foster the Fed’s inflation target. Short term real rates still too high. Fed can purchase assets; that should cement any concerns that the QE 2 is on track for Nov. Most of Bernanke’s remarks were about what we have heard from the Fed for months; his comment that the Fed can purchase assets to lower interest rates removes any concern that QE 2 is unnecessary, at least in the minds of the Federal Reserve officials. The remaining question for the Fed according to Bernanke is how much QE?
By 9:00 this morning al the initial early gains in the bond and mortgage markets had evaporated.The stock indexes, on the 8:30 data, were improving. The DJIA futures at 9:00 up 12, not a lot but Bernanke’s remarks about the economic outlook were not encouraging. The 10 yr note at 9:00 -6/32 to 2.53% testing its 20 day moving average; mortgage prices at 9:00 were weaker across the board for 30s and 15s. At 9:30mortgage prices were mixed; 30 yr FNMAs -3/32 (.09 bp), 30 yr FHAs -9/32 (.28 bp) and 15s -6/32 (.18 bp). The 10 yr note -9/32 at 2.54% above its 20 day moving average. The DJIA opened +36.
Going into more data at 9:55 and 10:00 the market volatility was extreme;better manufacturing on the NY Empire State data, lower inflation readings and better retail sales set up volatility as the dollar traded weaker then reversed on the data and Bernanke’s remarks. At 9:55 the U. of Michigan/Reuters consumer sentiment indexwas expected at 68.6 frm 68.2, it came at 67.9; the 12 month outlook at 70.0 frm 61.0 at the end of Sept. At 10:00 the final data point for this volatile day; August business inventories, expected at +0.5%, increased 0.6% with sales up just 0.1%; the inventory to sales ratio at 1.27 months from 1.26 months in July. Later this afternoon (2:00) Treasury is set to release the budget deficit for Sept, expected at -$32B
Where are the markets now? After a substantial decline in interest rates after the FOMC meeting on 9/21 when QE was put on the table, markets are consolidating the gains but not adding more to the rally. What remains now is how much will the Fed buy of US treasuries; we have nothing more than a guess, likely $500B to start with, with the proviso that if needed the Fed will buy more. There is no time line either; will it be dished out slowly or will the Fed make huge move? Likely a slow easing process rather than shock and awe.