Weekly Mortgage Overview: 5/13/2013

This Week

After a week with no economic releases, this week we have a number of measurements:

  • On Monday, April retail sales are expected to have declined.
  • Wednesday and Thursday April PPI and CPI will be released but inflation isn’t a problem and likely the two reports won’t jar the markets.
  • April housing starts and permits Thursday; starts expected to have declined while permits are expected to have increased.
  • The May Philly Fed business index is thought to be slightly better, but the index is very close to neutral—not showing much improvement.

The interest rate markets continue to reflect the possible end to the 30-year old bond market rally that started in 1983 with 30-year mortgage rates at 17% and the 10-year note at 18% (bank prime rate at 20%). The action in the rate markets that was triggered by the strong April employment report has not been able to achieve even a modest bounce after rocketing the 10-year from an intraday low of 1.63% to 1.93% last Friday before ending the week at 1.89%. Mortgage rates were up about 15 basis points last week.

Japan’s plan to weaken its currency is working against the US bond market; as the yen falls there is less demand for US bonds. Every technical indicator on the bond and mortgage markets is now solidly bearish. Last Friday in a Tweet PIMCO co-CEO and bond king Bill Gross declared the end to the declining interest rate rally, even after Gross said a month ago he was increasing PIMCO’s investment in US notes and bonds. Most likely Gross was looking at the magnitude and speed in which rates rose last week.