The FOMC meeting is now behind us.

The bond market's initial reaction to the Fed statement was not positive, at least not initially. 10 year Treasury yields rose from 3.56% to 3.61% and MBS prices fell, however before the end of the day the "knee jerk" reaction corrected and Treasury yields ended up closing near the price highs/yield lows of the day. This helped lead MBS prices higher and gave lenders an opportunity to improve mortgage rates, only a few did though.

The FOMC statement didn’t hold any surprises.   The Fed continued to state they expected the current Fed Funds rate to remain at current levels for an “extended period”.  They also mentioned that inflation expectations remain subdued and economic growth will remain slow and sluggish. They did however give a slight upgrade to labor market, citing "deterioration was abating". AQ analyzed every detail of the statement, check it out HERE.

Today is Thursday, that means Jobless Claims data is on the economic data calendar. 

The Jobless Claims report totals the number of Americans who filed for first time unemployment benefits in the prior week.   Included within this report is a read on continuing claims, which totals the number of Americans who continue to file for unemployment benefits because they have been unable to land a job.   A new part of the report is extended benefits.  Under the current administration, unemployment benefits have been extended by 13 weeks for Americans who cannot find a new job. 

The report showed that more Americans than expected filed first time claims last week, another illustration of a stagnate labor market.   After posting 5 weeks of improvement, jobless claims have taken a turn for the worse as this is the second week in a row where jobless claims have moved higher. 

  • Initial claims rose by 7000 to 480,000 vs expectations for 465,000. 
  • Continuing claims rose by 5000 to 5.186million also higher than the 5.15million that was expected. 
  • Americans filing for extending benefits increased by 144,000 to 4.73million.

In total, between continuing claims and extended benefits, there are still over 10million Americans filing for unemployment benefits!   Since our economy is driven by consumer spending, higher unemployment claims usually benefits the bond market, which occurred after this release.

The next set data came from the Conference Board...Leading Indicators.  This report is a composite index of 10 economic indicators that should lead to overall economic activity.   If the month over month change is positive, it indicates that the economy is improving.   The majority of the components have been reported earlier in the month so this report doesn’t really give us new information about the economy.  

The release indicated that Leading Indicators moved higher than expected with a  month over month improvement of 0.9% vs 0.7% expected.

The final report for the week is a measure on the strength of manufacturing in the Philadelphia region. Readings above 0 indicate improving conditions while readings below 0 indicate contraction.    Recent survey  results have shown manufacturing conditions to be improving.  November’s reading rose to 16.7 from 11.5 in October.  Expectations for this month’s report call for a slight pull back to 16.5. 

The report indicated that manufacturing conditions improved more than expected to 20.4 in December. Big jump! The bond market initially reacted negatively to this release, however market participants were soon buying again. AQ explained today's trade flows in MBS MORNING if you are interested in reading into the market in more detail.  



Reports from fellow mortgage professionals indicate mortgage rates have declined from yesterday.  The par 30 year conventional rate mortgage is now in the 4.75% to 5.00% range for well qualified consumers.  To secure a par interest 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.

I advised yesterday that if you are a risk taker that floating could pay off, well it did.  At the open we saw better rate sheets and as the day has progressed MBS prices have continued to move higher which has led to a few reprices for the better. This is partially a function of weakness in the stock market which has resulted in scared money moving into safer assets in the Treasury market. 

My advice is to continue floating, but only in the short term.

I cannot stress that time frame enough: SHORT TERM. AQ and MG have been talking about "year end" a lot. They note  "year end" as a very slow time on Wall Street. This implies the marketplace may move in a volatile manner as many traders take holiday vacations while others simply stop trading so the accounting department can clean up the books for shareholder annual review. Basically, unless some form of major headline news is presented, most of the price movement and rates direction we see over the next two weeks will not be indicative of things to come in 2010.

With that in mind, I will be offering only SHORT TERM lock/float advice. Today, if you lender has repriced for the better and you are happy with your rate...go ahead and lock it up. If you have some room to float, let's see how recent dollar strength plays out in the stock market, if the dollar continues to rally and stocks end up losing more ground, mortgage rates should continue to improve. 

I must again remind of the risk involved in this play. Slow markets = volatile price action and the potential for large shifts in interest rates. I am floating only a few loans, the majority of my pipeline has already been locked. I will likely float these into the afternoon and see how stocks end the session and gauge the effect they have had on interest rates. I will provide a brief update in the comments if my SHORT TERM outlook shifts towards a firm lock bias in the SHORT TERM. :-D