Weekly Mortgage Overview: 7/25/2016

What happened last week?


Mortgage backed securities (MBS) lost 9 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move sideways from the prior week and is the second straight week of MBS losing ground.

There was some very solid domestic economic data with real strength in the labor market and housing market. The European Central Bank left their key interest rate alone and the long bond market continued to settle down from our panic levels on 07/06 after the Brexit.

Domestic Flavor


  • The FHFA Housing Price Index for May showed a modest monthly gain over April of 0.2% for a YOY gain of 5.6%.
  • The July Housing Market Index AKA Home Builders’ Sentiment came in a 59 vs estimates of 61. Anything above 50 is a positive reading. Really a non-event.
  • June Housing Starts were higher than expected (1.89M vs estimates of 1.165M) while Building Permits were right in line with expectations (1.153M vs estimates of 1.150M). Both SFR (+4.4%) and Multi Family (5.4%) saw solid gains over May.
  • June Existing Home Sales hit 5.57M units, which is a nine year high and beat market forecasts of 5.48M units. The median existing-home price for all housing types in June was $247,700, up 4.8 percent from June 2015 ($236,300). June’s price increase marks the 52nd consecutive month of year-over-year gains and surpasses May’s peak median sales price of $238,900.

Jobs, Jobs, Jobs: Initial Weekly Jobless claims were lower than forecasts (253K vs estimates of 265K) and the more closely watched 4 week moving average dropped to 257.75K. This is a very strong trend here and about 9K lower the average for the prior month.

Leading Indicators: The June CB Index improved by 0.3% which just outpaced expectations of 0.2% and comes off of May’s -0.2% level. This report has been mixed over the past quarter.

European Central Bank

Th ECB left their key interest rate alone and their negative deposit rate alone as well. They would have needed to drop one of those and to announce more QE for MBS to rally.

What’s on the agenda for this week?


This is a huge week for economic data and Central Bank action. Last week MBS were stuck in a very tight range with fantastic support that held up time and time again. But will this week have the type of data that could break above or below last week’s channel? That is the million dollar question. The answer comes from our Fed and the Bank of Japan. Their comments and actions will dictate pricing more than anything this week.

Three Things

The three items that have the largest potential to move pricing for MBS are: (1) The FOMC rate decision, (2) 2nd quarter GDP Data and (3) Bank of Japan.

(1) The Federal Open Market Committee (FOMC) will conclude two days of meetings on Thursday and give their interest rate decision and policy statement. The markets are not expecting any movement at this meeting but are looking to see if it still looks like we are
on track for at least one rate hike this year. It will be interesting to see their comments now that the Brexit vote has occurred and our own very strong domestic data.

(2) GDP: We get our first glimpse of the preliminary 2nd quarter GDP and the market is expecting a very high reading of over 2.50%. The Fed has said several times that they will make their policy decisions based upon the strength of the 2nd quarter, so this is very key.

(3) Bank of Japan: Thursday’s Bank of Japan meeting is very key. The markets expected both the Bank of England and the European Central Bank to lower their rates this month and neither happened. The bond market is also expecting more easing from the BoJ, the size and scope of which will have a big impact on all of the markets.

Treasury Auctions this Week:

07/25 2 year note
07/26 5 year note
07/28 7 year note