It was a busy day in the rates market yesterday.  Although several data releases needed to be digested, the main event was the 30 year bond auction. Recently, while demand for shorter maturity Treasury notes has proven stable in the "post-November 4 FOMC statement" environment, the market has forced yields higher in the long end of the yield curve. Specifically the benchmark 10yr note and the 30 year bond have taken a beating over the past two weeks.  Yesterday was the first chance we had to really test market's appetite for longer dated debt investments, which have more of an influence over mortgage rates.  Unfortunately, while specific buyers supported the bidding, overall demand was weak compared to previous auctions. Following the release of the auction results, MBS prices plummeted and a few lenders with itchy trigger fingers repriced for the worse. However, soonthereafter the rates market recovered all losses and prices went green on the day! By the end  of the day, MBS prices were at their highest levels in quite some time.   Most lenders repriced for the better as the gains held until close.   To remind readers, as the price of MBS move higher, lenders are able to pass along lower mortgage rates. That momentum has carried over into today as MBS prices are once again slightly higher.

The morning started with data on US Import and Export Prices.  This data measures the change in the price of items our nation imports and exports which provides market participants a gauge on inflation.    Last month’s report showed export prices declining 0.3%  while import prices rose 0.1%, mainly due to the increase in the price of oil.   Year over year, last month’s report showed export prices down 5.6% and import prices down a whopping 12%.    

In today's release, export prices rose 0.3% and import prices rose 0.7%.  Year over year, prices for both imports and exports are  -3.4% and -5.7%, respectively.   This data put our inflation outlooks on alert as next week we get two more reports on inflation with the release of the Producer Price index on Tuesday and Consumer Price index on Wednesday.  Higher inflation can lead to higher mortgage rates. 

The next report to be released is a measure of the United State's trade balance with other countries: the International Trade report.   This data has a two month lag so today’s report shows the difference between what we imported and exported in September.  In August, our trade gap narrowed to -$29.5 billion. For September, economists surveyed expected the trade deficit to increase to $32.5 billion. However it widened more than expected. The release indicated our nation’s trade deficit widened by 18.2% to $36.5 billion.  Imports rose by 5.8% mainly due to higher oil prices while exports rose 2.9%.

The final report of the week gave us a read on consumer attitudes: Consumer Sentiment .  The Reuters/University of Michigan’s Consumer Survey Center questions 500 households each month on their personal financial conditions and attitudes about the economy.   Since our economy is driven by consumer spending, market participants want to know how  the consumer is feeling.   An optimistic consumer is much more likely to spend money while a pessimistic consumer is more likely to save money.   Last month’s report came in lower than expected and economists surveyed expect this month’s survey to show a small uptick in consumer attitudes.   The release indicates that consumers continue to show less optimism with the report coming in much lower than expected. AQ's MBS MORNING post discussed why this data is more important than usual.


I have been receiving questions regarding the Fed ending their MBS buying program next year.  Many believe once they exit, mortgage rates will have to substantially rise due to removal of the Fed from the market.  Already, the Fed has substantially slowed the amount of mortgages they purchase, yet mortgage rates remain near historic lows.  This is due to less loan production.  Many people have already refinanced to these record low rates, so there will be less loans done next year which should help offset the Fed exodus.  AQ wrote a commentary about this in the MND Newswire section.   Click here to check it out. 

Reports from fellow mortgage professionals indicate mortgage rates to be improved. The par 30 year conventional rate mortgage is now in the 4.625% to 4.875% range for well qualified consumers.  To secure a par rate you must have a FICO credit score of 740 or higher, a loan to value at 80% or less and pay all closing costs including an estimated one point loan origination/discount/broker fee. 

Currently, MBS are at the top of the trading range which I have used to give lock/float recommendations.   The strategy of lock at the price highs and float the price lows has worked very successfully over the last few months.   With MBS holding at the top of the range that they have been unable to break for months, I am recommending that clients and consumers lock in today.   If you have been floating since last week, you have picked up about .25% in rate, take advantage of the lower rates, and lock in. 

I hope everyone has a great weekend.