Weekly Mortgage Overview: 4/6/2015

What Happened Last Week?

Mortgage backed securities (MBS) gained +75 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move lower than the prior week. There was a swing of 106 basis points from our intra-day highs to intra-day lows last week, which is another excellent demonstration of the fact that volatility has returned in 2015 after being on hiatus in 2014.

Another week, another mixed bag for the U.S. economy. We saw some very positive economic releases with much better than expected readings in Pending Home Sales (3.1% vs estimates of 0.4%), Consumer Confidence (101.3 vs estimates of 96.2) and Factory Orders (0.2% vs est of -0.4%).

But the above positive economic report was trounced by Friday’s big Non-Farm Payroll (NFP) report. There was some good and bad news (okay mostly bad) in this report. Here is the breakdown:

Negative: The Non-Farm Payroll (NFP) report was a huge miss. The consensus estimates were in the 240K to 250K and with the “whisper” numbers on Wall Street of 100K below that. Plus to add insult to injury, February was revised downward from 288K to 264K. In fact, the last three months’ worth of readings were revised lower by a combined -69K and we have now broken our streak of readings above 200K for 12 straight months.  

The Unemployment Rate remained unchanged at 5.5% but the Participation Rate dropped once again from 62.8% down to 62.7% which is a level not seen since February 1978. There are now 93.2 million Americans who are not being counted in the Unemployment Rate because they are not working but also not looking for jobs either. Yikes!

Positive: We got our third straight month of some solid wage growth and on a month-over-month basis, it was stronger than expected (0.3% vs estimates of 0.2%). On a year-over-year basis, wages grew at a 2.1% clip which is not the same inflationary measure as the Feds’ 2% target rate, but it is something that Janet Yellen said she would consider in their rate hike timing. Also, while NFP missed….we still ADDED 126K new jobs. That is still a slight positive for the economy and based upon the improvement in the average wages, these are higher paying jobs.  

As a direct result of the lighter than expected NFP report above, the benchmark FNMA 3.00 made some solid gains which in turn, gave us our lowest mortgage rates of the week.

What’s on the Agenda for This Week?

This is a fairly light week for economic data with today’s ISM Services (2/3 of our economy) being the biggest statistical report of the week. But the two biggest events of the week will be the release of the minutes from the last FOMC meeting and our 10 year Treasury auction.

U.S. Treasury Auctions

04/07 3 year note
04/08 10 year note
04/09 30 year bond

The Talking Fed

Here is this week’s speaking schedule:

04/06 – New York President, William Dudley
04/07 – Minneapolis President, Narayana Kocherlakota
04/09 – Richmond President, Jeffrey Lacker

Across the Pond

Oil: Keep an eye on oil prices as some (not all but some) of the positive momentum in MBS was due to continued falling oil prices and their negative impact on our economic growth and lower inflationary impact.Bonds love both of those. But WTI is back above $50 on news that Saudi will raise prices. This trend will need to be monitored.

Greece: Says that it will keep all of its obligations. Meanwhile they have made direct overtures to Russia, China and Iran….what a friendly group. EU officials are proclaiming that the current government cannot survive in Greece.