San Francisco Mortgage News

Monday Minutia

Last week there wasn’t much direct news for the bond and mortgage markets. Interest rates increasing around the globe, no economic reports of consequence and politicians working on a budget to fund deficits through the end of 2011 fiscal year (Sept). The rate markets last week saw the 10 yr yield increase 12 bp, mortgages up 6 bp.

At the 11th hour (literally) the Congress and the Administration agreed on a budget, avoiding a government shutdown. The media made a huge deal out of the inability of Republicans and Democrats to agree, markets however were generally convinced the shut-down would be avoided.

Treasuries and mortgages started the day about unchanged from Friday, a couple of ticks weaker; in pre-market trading the stock indexes were higher and at 9:30 the DJIA opened better (+20)  Mortgage prices were down 2/32 (.06 bp) prior to 9:30 but improved a little to +2/32 (.06 bp) . Last week the DJIA up 3 pts, NASDAQ -9, and the S&P -4. Today there are no economic releases for markets; through the week however we will get more data than last week.

Starting tomorrow afternoon Treasury will auction $66B of notes and bonds, recent borrowing demand from investors has been a little soft so demand will be closely watched. Wednesday Pres Obama will speak and release the administrations 2012 budget; politicians had a difficult time over the past few weeks agreeing on a budget for the rest of this year. The 2012 budget battle will make the recent budget battle look like children’s play. Cuts in entitlements will be difficult to get agreement but it is necessary to cut them; Medicare and Medicaid and likely talks of revenue increases. Recall Obama extended the Bush tax cuts this year, that isn’t likely to happen next year so taxes for many will increase just on that alone.

This Week’s Economic Calendar:

        Tuesday;

            8:30 am Feb trade balance (-$45.7B)

                        Mar import and export price (N/A)

            1:00 pm $32B 3 yr note auction

            2:00 Mar treasury budget balance (-$189.0B)

      Wednesday;

            7:00 am Weekly mortgage applications

            8:30 am Mar retail sales (+0.5%; ex auto sales +0.8%)

            10:00 am Feb business inventories (+0.8%)

            1:00 pm $21B 10 yr note auction

            2:00 pm Fed’s Beige Book (report on the economy)

      Thursday;

            8:30 am weekly jobless claims (+3K to 385K; con’t claims 3.70 mil frm 3.723 mil)

                         Mar producer price index (+1.0%, ex food and energy +0.2%)

            1:00 pm $13B 30 yr bond auction

      Friday;

            8:30 am Mar consumer price index (+0.5%; ex food and energy +0.2%)

                         Apr NY Empire State manufacturing index (15.0 frm 17.5 in Mar)

            9:15 am Mar industrial production (+0.6% frm unch in Feb)

                         Mar capacity utilization (77.4% frm 77.0% in Feb)

            9:55 am U. of Michigan mid-month consumer sentiment index (66.0 frm 67.5)

Technically the bond and mortgage markets are a little oversold on a near term measurement, a little improvement is likely but the trend won’t change—its negative. The 10 yr managed a successful test of longer term support at 3.60% on Friday and fell back to close at 3.58%. We suggest using any improvements to lock loans about to close. The best we can forecast is the 10 may fall back to 3.50% at best. Treasury auctions should keep rates from declining much in the early part of the week.

This Week; the bond market has Treasury auctions to think about, $66B of notes and bonds beginning Tuesday. The Pres will speak on Wednesday to outline his 2012 budget after finally coming to agreements to increase the debt limit through the remainder of this fiscal year. Politicians debating the stop-gap measure last week could barely get it done, the 2012 budget battle will be much more of an issue with Medicare and Medicaid cuts that most believe will have to be happen. Besides spending cuts to improve the outlook for US debt there must also be revenue enhancements (taxes).

Economic data this week has a little more focus with March retail sales, PPI, CPI and a couple of reports on the manufacturing sector. Inflation concerns continue to increase everywhere except at the Fed with Bernanke believing the recent increase in raw prices and most all commodities as a transitory event and his concern that the US economy is still fragile. While that is the case, investors and the markets are moving out of fixed rate investments and into commodities especially gold as a hedge against what private markets increasingly believe, that inflation will get traction by the end of the year. The current consensus is that the Fed will not begin tightening until late this year or into next; there are however increasing numbers of analysts that are beginning to adjust to rate hikes sooner. By the time the Fed actually tightens markets will have mostly discounted higher rates. The bond and mortgage markets remain bearish, look for continued increases in rates over the next six months.