Weekly Mortgage Overview: 4/28/2014

THIS WEEK

This is by far the biggest week for economic data that we have had in a long time.

• Housing: Pending Home Sales and the Case-Shiller Home Price Index.
• Labor Markets: ADP Private Payrolls, Challenger Job Cuts, Initial Jobless Claims, Non-Farm Payrolls, and the Unemployment Rate.
• Manufacturing: Chicago PMI and ISM Manufacturing.
• General Economic Reports: 1st QTR GDP, Consumer Confidence, Factory Orders, Construction Spending, Personal Income and Spending and Total Vehicle Sales.

In each of the categories above (Housing, Labor, Manufacturing and General) there is at least one report in that category that is a major market moving report. That hasn’t occurred in a long time.

Domestically, the biggest event of the week will be Wednesday’s Federal Open Market Committee (FOMC) interest rate decision and policy statement. The bond market widely believes that the FOMC will not change their current Fed Fund rate which currently stands at 0.25%. They are also expecting the FOMC to announce that they will reduce the amount of Treasury purchases by another $5 billion and also reduce the amount of their monthly Agency MBS purchases by another $5 billion. Bond traders will be focusing on the forward guidance by the Fed and looking for any language that would help bond traders have a better understanding of a time frame for the Fed to begin to raise their Fed Fund rate.

There are no major Treasury auctions this week.

But overshadowing these big name economic reports will be the same theme that has ruled the bond markets for the past several weeks. And that is Russia/Ukraine or Ukraine/Russia as a new round of sanctions against Putin’s closest friends is in the works. Now they are on “double secret probation” and are in danger of being kicked off of Faber’s campus. If the market feels that things stabilize there, then Mortgage backed securities (MBS) have a chance to actually react to our domestic data this week. Only time will tell.

TODAY’S EVENTS

Pending Home Sales: The market is expecting a small rebound from the last reading of -0.8% to +1.0% this time around. This report is only for signed contracts and not for actual closings. It would take a reading of +3.0% or above for any type of real pressure on pricing this morning.

MBS OVERVIEW – LEARN FROM THE PAST

MBS gained +61 basis points (BPS) from last Friday’s close which caused 30-year fixed mortgage rates to move lower from the prior week and almost erased the prior week’s -67BPS sell off. The market saw the lowest rates on Friday and the highest rates on Tuesday.

For the fifth straight week, under normal circumstances, the domestic economic data would have caused MBS pricing to deteriorate. But it was all Russia, all the time on the networks and concern over tensions increasing in Ukraine/Russia had global investors seeking out the safety of U.S. bonds. This jump in demand for our bonds caused mortgage rates to decrease.

The following economic data certainly was better than expected and shows continued growth in the U.S.