Austin Mortgage Blog

Posts Tagged ‘Market’

The best the market can hope for (short term) is to stabilize at current levels given all the uncertainty in stocks and global assets

32 billion of 7 year notes just hit the auction block.  The yield came in at 3.127% with 51.1% going to the Indirect Bidders (great number).  Bid to cover was 2.85 to 1 (average is 2.71 to 1) which is a plus as well.  The only negative (not huge) was that the issue produced a .05 bp tail.

A few of you have asked, “what do you mean by a tail.”  At the final bell of the auction (12:00 cst), the screen will reflect the final yield or offered yield for that auction.  Bidders put in an orders which can range from a certain price to “when issued”, meaning they will take the final yield at the bell.  If all of the bids are at the final yield or below, everyone’s order gets filled at that price/yield.  We call that a “bullet” auction.  When that is not the case, the issuer (Treasury) will go to the next highest yield and award orders until the entire issue is sold.

So, today’s auction went to the masses at 3.127% with a small percentage being awarded at 3.177%, producing a .05 bps “tail”.  Hope this makes sense.  Overall, we’ll give this auction a B plus.  Speaking of B’s, the stock market has one in its bonnet, down over 100 points on the big board.  Reasons for the selling stem from worse than expected Durable Goods Orders (plus .3%) and Weekly Unemployment Claims (down 8K expected to be down 20K).

Greece is still in the news as its sovereign debt takes a pounding.  It didn’t help when ECB President Trichet said that each country must take care of itself and not expect the EU to bail them out.  So, so earnings are in part to blame as top line revenue growth is ok at best, leading to the conclusion that stocks may be in for a 10% to 20% correction.  Sure looks like it to me.

Currently, the 10 year note is off 7/32’s (yield 3.67%), mortgage backed securities off 3/32’s, and stocks off over 100 points.  As we mentioned yesterday, the chart points to a top in the making, evidenced by its failure to hold below the 3.65% yield mark.  We see the market in a consolidation phase, one that could push yields closer to 3.72%.  The best the market can hope for (short term) is to stabilize at current levels given all the uncertainty in stocks and global assets.  Good idea to stay defensive and see how the next day and a half play out.

Until we see a bottom (which we feel is close) you must stay on defense

Not much going on as we enter holiday week two of two.  The 2 year note auction hit the tape however, posting a yield of 1.089% with indirect bidders taking 35% of the issue.  The bid to cover was 2.91 to 1 and the 44 billion dollar devil grew a 1.4 bps tail.  The indirect bidders saved this auction, otherwise we would refer to it as a Toy Poodle or in Texas, a Chihuahua (small dog).   Light volume is all that’s happening in both stocks and bonds, with the 10 year note off 8/32’s (yield 3.84%) and mortgage backs off 7/32’s.  Stocks aren’t much better, down 6 or so points on the big board.  Momentum on the fixed income side (notes, bonds, MBS) is decidedly bearish but losing some of its power.  These reading are expressed by a number of studies such as Trend Intensity, RSI, and MACD.  This is starting to look a little long in the tooth as the market tries to carve out the low end of a new trading range.  Another point of bullish contention or at least optimism is that month end, year end extensions (hedge funds, mutual funds, etc.) are quite large.  The treasury complex needs to extend .06.  The average is .02.  The Government/Credit index also needs to tack on .06 years, double the average.  MBS extensions needed are a hefty .07 years.  This will force fixed income traders to buy the market and should help our pricing into year end.  Trouble is, every sector of the curve remains weak and cannot be trusted.  Until we see a bottom (which we feel is close) you must stay on defense.  Kind of a Yogi Berra thing, “it’s not over till it’s over.”

Stocks will hold the key as to where Austin mortgage rates go next

Advanced 3^rd Quarter GDP hit the tape better than expected at plus 3.5%.  Economists were looking for a 3.3% print while Goldman Sachs revised their number (yesterday) to plus 2.7%.  The better than expected number was driven by durable goods (plus 3.4%) and personal consumption (plus 2.36%).  In reality, this number caught at least ½ of its gain from Cash for Clunkers and inventory rebuilding.  Although important, they are in the rear view mirror, making the road ahead still full of hairpin turns.

Weekly Claims dropped 1K to 530K and Continuing Claims fell a staggering 148K to 5.797 million.  The number to focus on here is the Weekly Claims, still maintaining a 500K plus per week average layoff run rate.  This is 500,000 people per week losing their jobs.  Not the makings of a healthy consumer.  Wouldn’t it nice if the White House would move this to the front burner.  Instead we have the Treasury Secretary testifying on Capitol Hill, endorsing Barney Frank’s bill for “a strong framework for achieving a safer, more stable financial system.”  Trouble is they want to give the Treasury Secretary the power to approve or not to approve the Fed’s decisions on systemic risk.  Sounds a little too political for me.

All of the above has put a little volatility back into the market.  Currently, the 10 year note is down 20/32’s (yield 3.49%), MBS down 6/32’s, and stocks up 75 points on the big board.  Stocks will hold the key as to where Austin mortgage rates go next.  The current pattern (stocks) has been for sellers to lean on the market when it rallies (5 out of the last 7 days).  We will want to watch the late afternoon trade (from 2:00 to 3:00 cst) to see if they can hold today’s gains.  Failure to do so will improve mortgage pricing while a positive close, especially 50 points or more, will put additional pressure on our stuff.

Technically, the selling today has pushed hourly charts into new sell signals (bearish) yet daily time frames remain neutral.  Overall, the charts point to another ½ point of weakness on the 10 year note but will take a back seat to the stock market trade.  We also have 31 billion of 7 year notes on the auction block.  We’re expecting this to go off without a hitch.

I’d like to wish you a frightening day tomorrow and the best sugar high Halloween ever.

The good news is it’s Friday. The not so good news is where the market has closed.

The good news is it’s Friday.  The not so good news is where the market has closed.  10 year note futures (earlier chart) could not find a White Knight, settling at the lows (high yield) of the day.  With the weekly close below the 40 day moving average, odds are good that further price deterioration (worsening mortgage pricing) will be in vogue early next week.  At least until the auction paper has a new home.  We don’t see this as a long term trend developing, but one where supply pressure and negative technicals will cause bond and MBS buyers to sit on their hands.  Other technical studies such as Elliot Wave suggesting a C wave move lower of another 2 points and Candle Stick patterns forming a “lower shadow”,  tell us that buyers have exited the market.  Keep in mind that I am not “chicken lickin” and the sky is not falling.  Just expect prices to get a little worse before they get better.  At the close, the 10 year note is off 19/32’s (yield 3.50%), MBS down 7/32’s, and stocks off 109 on the big board.  Have a great weekend.

While a number of Fed Governors are pounding the rate rising drum, the policy statement continues to favor low rate, easy money well into 2010

Given all the moving parts within our economy, it’s no wonder that every day presents a new challenge.  That’s why it is so important for the Fed to communicate to the market, setting expectations given certain economic developments.  To date, a grade of C is the best we can give them on this issue.  Case in point can be found in statements made by Fed Governor Plosser, making the case for rate hikes sooner than later versus Fed Governor Evans expressing concerns over 10% unemployment and the need for low mortgage rates well into the future. While a number of Fed Governors are pounding the rate rising drum, the policy statement continues to favor low rate, easy money well into 2010.

What they would like to do is communicate an upcoming transition period.  One that would produce a soft landing instead of going cold turkey.  With their focus on employment and inflation, it would seem that rates will remain low until the unemployment picture stabilizes and then starts to improve.  High oil prices and a falling dollars could throw a monkey wrench into the mix.  We would expect Gentle Ben or Fed Governor Kohn  to communicate this philosophy in the near future to settle the market’s ruffled feathers.

Existing Homes Sales completed the week’s data stream, jumping 9.4% to 5.57 million units.  The above expectation print was the best we’ve seen since July 2007.  Sales were up in every region of the country with the Wild West leading the pack (13.0%).  31% of the sales were directly linked to the 8K first time home buyers program.  Let’s hope the gang on Capitol Hill figures out a way to extend this into 2010.  Fast money players have been active in both bonds and stocks.  Currently, the 10 year note is down 14/32’s to yield 3.48%.  Mortgage backs have performed a little better as spreads have tightened but are still in the red, off 4/32’s.  Stocks are off as well, down 65 point on the Dow.  Even the blow out numbers by Mr. Softy could not help the cause.  I would like to call your attention to the daily 10 year note chart.  The two blue lines represent the 21 and 40 day moving averages.

As you can see, both have been violated as the market continues to trade in a lower high, lower low pattern.  Since the market peaked on Tuesday (yield 3.22%), the market has formed a bearish trend taking out a number of support levels.  Current yield levels (3.48% to 3.50%) are critical to the near term direction.  With supply coming next week (137 billion in auction paper), odds are good that support will fail to hold and a new target of at least 3.52% to 3.58% will be achieved.  On the glass half full side, the angle of decent of the down trend (line at the far right) is quiet steep and short term oversold.  This tells us that trading volume has been light with a higher percentage of fast money traders versus position trades.  Both are supportive of the market finding a bottom.  Trouble is, if the bearish trend continues, say above 3.58% on the note, there is nothing on this chart for support until we get to 116 15 (dark horizontal line).  That target would clip mortgage pricingif it comes to fruition.  The close today will provide us a better picture.

Housing numbers didn’t impress anyone

The 10 year note is up 15/32’s (yield 3.33%), MBS on the 4.50% coupon up 5/32’s, and stocks down 75 points on the Dow.  Interesting equity markets as a number of earnings reports hit the screen early today with strong results.  Apple blew the doors off with earnings at $1.82 per share.  PPI posted better than expected numbers and certainly takes the Fed off the inflation hook.  Housing numbers didn’t impress anyone.  We’ll stick with our neutral market call while leaning towards the bullish camp.

Potential rate lock selling to hedge upcoming corporate bond issues could weigh on the market, effecting Austin mortgage pricing in a negative way

Just a thought or two before the day slips away.  Unlike yesterday, it’s been a fairly quiet market with stocks down 61 on the Dow and MBS flat to up 2/32’s.  Option expiration has ruled the day in stocks with a little added volatility due to poor earnings reported by B of A and GE.  IBM disappointed as well.  Mid-day, trading has ground to a halt as fast money traders have already started their weekend.  Little is seen to change the afternoon trade with the exception of potential rate lock selling to hedge upcoming corporate bond issues.  If this occurred, it would weigh on the market, effecting Austin mortgage pricing in a negative way.  Most likely, we will continue to hold the range of the past few days as traders sell strength and buy weakness.  The only thing we don’t like is the fact that as stocks trade lower (at one time down over 100 points), mortgage backs and the 10 year note fail to rally.  Currently, the 10 year note is up 8/32’s (yield 3.44%), MBS up 2/32’s, and stocks off 61 on the big board.  Caution is still advised as we button up the week.

With both the ISM manufacturing index and the non-farm payroll employment report due out tomorrow; the market is cautiously watching

With both the ISM manufacturing index and the non-farm payroll employment report due out tomorrow; the market is cautiously watching.  The Dow is down 140, and Bonds are up across the entire curve.  The 10 year is up 22/32s and the 30 Year Bond is up more than point.  The RSI (Relative Strength Index) on the 60 minute chart is at 87, well into the red!

We see the trade as continuing to be range bound

Lots going on today.

• Start of the FOMC meeting (2 day),
• FHFA Home Price Index up .3%,
• Richmond Fed Index unchanged at 14,
• and the FOMC statement of last month’s meeting due for release at 1:15 pm cst.

We also have treasury auctions this week in the form of 2’s, 5’s, and 7 year notes to the tune of 112 billion.  Auction demand should be good as foreign governments will buy due to our weak dollar and the fact they own so many of them.

Both stocks and bonds have a little green on the screen.  Stocks have a bear/bull tug of war going on as bulls try to crack through the S & P resistance at 1080 and bears continue to short the market, looking for a top at the same level.  Bonds, notes, and MBS seem to trade in their own little world, range bound with good support from a multitude of buyers.  Tomorrow’s FOMC policy statement could hold the key to a trending change, especially if the Fed hints that they will be taking accommodation out of the market (tightening/raising short term Austin mortgage rates). You will want to pay attention tomorrow at 1:15 pm cst.

Technically, the weakness overnight traded to the low end of the range before boot strapping itself up this morning.  We see the trade as continuing to be range bound, bracketed by 3.52% on the high yield side (10 year note) and 3.42% on the low side.  Any move outside of these parameters will move the market for at least 1 point and a good ½ point in Austin mortgage pricing. Month end supply (112 billion) and a spooky FOMC policy statement sideswipe tilt our bias.

Austin mortgage pricing is hanging in there but commands your attention

Meant to post this yesterday!

Big day on tap starting with the 10 year note auction (12:00 pm cst) and culminating with the President’s speech tonight on health care.  Bond and MBS traders seem to be caught somewhere between fixed income risk and safe haven harmony.  The risk comes on the heels of China’s Finance Minister’s comments about helicopter Ben Bernanke spreading money all over with the world, creating an environment for inflation.  Keep in mind that China is Americas banker.  The safe haven part of this comes from the old trading saying, “don’t fight the Fed” as Uncle continues to buy MBS, underpinning the market.  Case in point is the divergence between treasuries and MBS.  Currently, the 10 year note is off 12/32’s to yield 3.51% and yet MBS are off only 1/32^nd.  The 30 year bond is down nearly 1 point.  Caution here as the spread can only tighten so much before the potential of MBS to fall due to the selling pressure on treasuries.  Today’s 10 year auction will be something to pay attention to.  In other news, mortgage applications surged 17% according to the Mortgage Bankers Association, gold is trading above $1000.00 (inflation fear), and Consumer Credit fell by a record 21.6 billion.  Stocks keep on creeping, up 30 points on the big board and as I mentioned, Austin mortgage pricing is hanging in there but commands your attention.