Interest rate markets started a little better this morning with stock indexes in the US weaker and selling in the Europe stock markets. Europe’s purchasing mgrs. Data out in Europe was weaker than estimates and still concerns that Greece’s austerity agreement is so severe its economy will continue to decline and in time the country will not be able to achieve the goals set out in the agreement with the IMF, the EU and the ECB. European stocks retreated for a second day after a report showed services and manufacturing output in the euro area unexpectedly contracted in February. The
composite index based on a survey of purchasing managers in both industries dropped to 49.7 from 50.4 in January; estimates were for the index to come at 50.5. A separate report showed German services and manufacturing expansion unexpectedly slowed in February amid declining orders at factories.
Fitch lowered the rating of Greek debt to C from CCC, saying Greece is highly likely to default on its debt. US treasuries are also betting that Greece will default, as a reaction the US bond market will continue to be well supported on sell-offs. Pulling the other direction, investors are increasing concerns on inflation to six month highs in trading of Treasury Inflation Protected securities. Inflation fears won’t dissipate with interest rates at these low levels, however we see little pricing pressure in labor costs or commodities like crude oil. Crude has jumped over $6.00/barrel in the last couple of weeks, mostly on Iranian fears, when global equity markets increase crude follows but higher energy prices will very likely curb discretionary consumer spending and dampen the optimistic economic outlook.
A couple of technical levels tested and held yesterday; the 10 yr note yield increased to 2.06% where we have support at 2.08% area, the DJIA tested 13K yet backed away into the close (12,996). Prior to 9:30 the DJIA traded down just 4 points while the 10 yr note at 2.05%; not much change from yesterday’s closes (MBS prices at 9:00 +1/32 (.03 bp).
At 9:30 the DJIA opened -11, 10 yr +6/32 at 2.04% -2 bp and MBS prices +5/32 (.15 bp). MBS prices were generally unchanged until 9:20 so early pricing doesn’t likely reflect the better levels at 9:30.
At 10:00 Jan existing home sales increased 4.3% frm Dec against forecasts of +1.6%. Dec sales however were revised to -0.5% frm +5.0%. According to NAR there is a 6.1 month supply of homes; -0.4% to 2.31 mil the lowest level since March 2005. Distressed sales accounted for 35% of all sales com[pared to 32% in Dec. There was little initial reaction to the report.
At 1:00 Treasury will auction $35B of 5 yr notes, yesterday’s 2 yr note auction met with OK demand but not as strong as traders were expecting.
Mortgage applications decreased 4.5% from one week earlier, according to data from the Mortgage Bankers Association’s Weekly Mortgage Applications Survey for the week ending February 17, 2012. The Refinance Index decreased 4.8% from the previous week. The seasonally adjusted Purchase Index decreased 2.9% from one week earlier. The unadjusted Purchase Index increased 1.4 percent compared with the previous week and was 9.2 percent lower than the same week one year ago. The four week moving average for the seasonally adjusted Market Index is down 0.30%. The four week moving average is down 3.21% for the seasonally adjusted Purchase Index, while this average is up 0.33% for
the Refinance Index. The refinance share of mortgage activity decreased to 80.1% of total applications from 81.1% the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 5.3% from 5.4% of total applications from the previous week.
In January 2012, among refinance borrowers, 57.2% of applications were for fixed-rate 30-year loans, 24.4% for 15-year fixed loans, and 5.5% for ARMs. The share of refinance applications for “other” fixed-rate mortgages with amortization schedules other than 15 and 30-year terms was 12.9% of all refinance applications. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) increased to 4.09% from 4.08%, with points increasing to 0.53 from 0.51 (including the
origination fee) for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,500) increased to 4.32% from 4.30%, with points decreasing to 0.42 from 0.44 (including the origination fee) for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA remained unchanged at 3.87%, with points decreasing to 0.41 from 0.78 (including the origination fee) for 80% loans. The average contract interest rate for 15-year fixed-rate mortgages increased to 3.38% from 3.33%, with points decreasing to 0.37 from 0.40 (including the origination fee) for 80% loans. The average contract interest rate for 5/1 ARMs increased to 2.94% from 2.93%, with points increasing to 0.44 from 0.42
(including the origination fee) for 80% loans.
