MMG Update - Friday, June 27, 2008 10:59am ET
Current Trend Direction: Sideways
Risks Favor: Cautiously Floating
Current Price of FNMA 6% Bond: $100.59, +19bp
On the heels of the Fed decision to leave the Fed Funds Rate unchanged, their favored gauge of inflation arrived this morning, the Core Personal Consumption Expenditure (PCE) reading. The Core PCE rose 0.1% during May, lower than expectations of 0.2% - which left the closely watched year-over-year Core inflation rate at 2.1%. This is outside the Fed's desired range of 1 - 2%, but tolerable in light of the ongoing inflation fears...which has to come as a relief to the Fed.
Also embedded in the PCE report are readings on Personal Income and Spending, which both grew at rates larger than estimates in May. The boost in spending was likely due to the stimulus checks that were sent out to many American taxpayers in the beginning of May.
Oil hit a record high of $142.26 this morning and the inflationary fears inherent in rising oil prices are keeping a lid on both Stocks and Bonds. Stocks have been downright ugly, as the Dow is poised for the worst June since the Great Depression. But at the same time, Mortgage Bonds haven't performed well either...inflation is bad news for both Stocks and Bonds.
The University of Michigan's Consumer Sentiment index fell to 56.4 in June, from 59.6 in May. It's the lowest since 1980 and the third-lowest reading in the 56-year history of the survey. Mortgage Bonds are being helped by this poor economic news.
The ceiling of resistance at $100.47 is being tested again, but has been difficult to break of late. This gives us extra reason for a cautious approach this morning, as we want to see if prices can break above this barrier...but also must remain on guard, because a reversal from this level leaves a long way down before the next floor of support. Take a look at the Bond Page, and you can see how Bond prices have been unable to overcome the $100.47 ceiling, even in the face of a nearly 400 point decline in the Stock market yesterday, which should have pushed some money over into Bonds. We can carefully Float for now, but be ready to Lock as this formidable level of resistance could push prices lower still.
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Marina Vialtsina
Showing posts with label bonds. Show all posts
Showing posts with label bonds. Show all posts
Tuesday, July 1, 2008
Tuesday, June 24, 2008
Market New: Stocks, Bonds and Interest Rate
Monday's bond market has opened in positive territory following a negative open for stocks. The stock markets are starting the week off with losses with the Dow down 10 points and the Nasdaq down 15 points. The bond market is currently up 6/32, but we will likely still see an increase in this morning's mortgage rates of approximately 125 of a discount point due to weakness late Friday.
There is no relevant economic news being released today. The rest of the week will likely prove to be very active in terms of mortgage rate movement due to the economic data and other events that are scheduled. There are six economic reports scheduled for release between tomorrow and Friday, in addition to another Federal Open Market Committee (FOMC) meeting. Together, we have the makings of a potentially volatile week in the financial and mortgage markets.
There is no relevant economic news being released today. The rest of the week will likely prove to be very active in terms of mortgage rate movement due to the economic data and other events that are scheduled. There are six economic reports scheduled for release between tomorrow and Friday, in addition to another Federal Open Market Committee (FOMC) meeting. Together, we have the makings of a potentially volatile week in the financial and mortgage markets.
Tuesday, May 6, 2008
Mortgage Market Update - Oil hits a new high
MMG Update - Tuesday, May 6, 2008 9:14am ET
Current Trend Direction: Sideways
Risks favor: Floating
Current Price of FNMA 5.5% Bond: $100.59, +19bp
Bonds are moving higher this morning after bad news was released for Fannie Mae, the largest provider of US home financing. The company said it lost $2.19 Billion in the first quarter due to the current housing and credit crisis, which equates to a loss of $2.57 a share compared with a profit of 85 cents a year ago. And like Freddie Mac, the company plans to raise capital and cut its dividend. Stocks traded lower on the news, pushing money into Bonds and helping Bond pricing improve.
In other headlines, oil hit a new record high of $120.93 this morning. Oil prices have doubled over the past twelve months, pushing the average price at the pump to $3.60 a gallon. Goldman Sachs is forecasting that black gold could rise to $150-$200 a barrel in the next twelve months. If this plays out as they suggest, the inflationary effects of high oil prices could pressure Mortgage Bonds lower, causing home loan rates to move higher...so this will be a story to watch. In other words, it might be the time to buy now while rates are low. And, because of the inflation alone, we may see higher home prices.
For now, Bonds continue to ride a dual floor of support at the 50 and 100-day Moving Averages. We will continue to Float for now, and watch how the Bond behaves near this strong floor.
Current Trend Direction: Sideways
Risks favor: Floating
Current Price of FNMA 5.5% Bond: $100.59, +19bp
Bonds are moving higher this morning after bad news was released for Fannie Mae, the largest provider of US home financing. The company said it lost $2.19 Billion in the first quarter due to the current housing and credit crisis, which equates to a loss of $2.57 a share compared with a profit of 85 cents a year ago. And like Freddie Mac, the company plans to raise capital and cut its dividend. Stocks traded lower on the news, pushing money into Bonds and helping Bond pricing improve.
In other headlines, oil hit a new record high of $120.93 this morning. Oil prices have doubled over the past twelve months, pushing the average price at the pump to $3.60 a gallon. Goldman Sachs is forecasting that black gold could rise to $150-$200 a barrel in the next twelve months. If this plays out as they suggest, the inflationary effects of high oil prices could pressure Mortgage Bonds lower, causing home loan rates to move higher...so this will be a story to watch. In other words, it might be the time to buy now while rates are low. And, because of the inflation alone, we may see higher home prices.
For now, Bonds continue to ride a dual floor of support at the 50 and 100-day Moving Averages. We will continue to Float for now, and watch how the Bond behaves near this strong floor.
Monday, April 7, 2008
Morgage Update: Stocks and Bonds
The recent euphoria in the Stock market continues, and the word in the trading pits is that perhaps the credit crunch is over. Today, we are hearing about more financial institutions raising capital, and this time it is Washington Mutual saying that it has investors injecting $5 Billion in cash. Traders are reading the recent investments and capital raising in the financial sector as a sign that the worst days of the credit crisis may be in the rear view mirror. As a result, Stocks overall are trading higher, and as money flows out of Bonds and into Stocks, this is hurting Bond prices a bit this morning.
Today kicks off the beginning of earnings season for Stocks, which may have the potential to add to the euphoria or change the mood to a negative one depending on the results. With the scent of recession in the air, the quality of corporate earnings and especially future guidance will largely influence the direction of both Stocks and Bonds in the coming days. If corporate earnings are reported weaker than expected, Stocks may come off the happy gas and head lower, which would provide a boost to Bonds.
Mortgage Bonds, while trading lower, are improved from the worst levels seen earlier in the day. Additionally, prices remain well above support at the 50-day Moving Average. For now, we will continue to Float and give Bonds a chance to further improve - but be ready to Lock your mortgage rate if things turn sour.
Today kicks off the beginning of earnings season for Stocks, which may have the potential to add to the euphoria or change the mood to a negative one depending on the results. With the scent of recession in the air, the quality of corporate earnings and especially future guidance will largely influence the direction of both Stocks and Bonds in the coming days. If corporate earnings are reported weaker than expected, Stocks may come off the happy gas and head lower, which would provide a boost to Bonds.
Mortgage Bonds, while trading lower, are improved from the worst levels seen earlier in the day. Additionally, prices remain well above support at the 50-day Moving Average. For now, we will continue to Float and give Bonds a chance to further improve - but be ready to Lock your mortgage rate if things turn sour.
Tuesday, February 19, 2008
Risk vs. Reward: How Bonds Behave
Even though BONDS have a reputation as conservative investments, it doesn't mean they're always safe. Any time you lend money, after all, you run the risk it won't be paid back. Companies, cities and counties occasionally In fact, economists label the yield of the shortest-term U.S. bonds "the risk-free rate of return."
Paradoxically, another source of risk for certain bonds is that your loan may be paid back early, or "called." This is known as prepayment risk. While it's certainly better than not being paid back at all, it forces you to find another, possibly less lucrative, place to put your money. When you buy a bond, the prospectus will indicate whether a bond is callable and give you a "yield-to-call" figure. If you have a choice, buy a bond without the call option.
Inflation By far, the greatest danger for a buy-and-hold bond investor is a rising inflation rate. Nothing spooks bond traders more than cheerful headlines about full employment or strong economic growth. When the economic news is good, the bond markets often take it as a bad sign -- a harbinger of an impending period of slowly rising consumer prices. The hotter the economy, the worse the threat. And the more downward pressure on bond prices.
Why is inflation such a problem for bondholders? Think about it this way: Rising prices make today's dollars worth less in the future than they're worth today. Since a bond can lock up your money for as long as 30 years, a rising rate of inflation can have a particularly corrosive effect.
All this explains why bond traders live in a hall of mirrors. What you or I might consider good news, they often consider bad. The bond market itself is a minute-by-minute referendum on the threat of inflation. If the threat is high, prices fall and yields -- or interest rates -- rise. This is often an excellent time to buy bonds. But if you own them already, you're stuck.
Yield vs. RiskInflation risk, credit risk and prepayment risk are all figured into the pricing of bonds. The more risk, the higher the yield. It's also true that investors demand higher yields for longer maturities. The reason for that is obvious -- given enough time, a once-healthy corporation can go bankrupt and suddenly lose the ability to pay its obligations. Inflation could run rampant, seriously eroding the purchasing power of that $1,000 you're supposed to get back in 30 years. These things are unlikely or you'd never invest in the first place. But the longer you tie your money up in a bond, the more at-risk it is statistically.
The credit quality of companies and governments is closely monitored by the two major debt-rating agencies; Standard & Poor's and Moody's. They assign credit ratings based on the entity's perceived ability to pay its debts over time. Those ratings -- expressed as letters (Aaa, Aa, A, etc.) -- help determine the interest rate that a company or government has to pay when it issues bonds. The market determines the price -- and thus the yield -- after that.
Paradoxically, another source of risk for certain bonds is that your loan may be paid back early, or "called." This is known as prepayment risk. While it's certainly better than not being paid back at all, it forces you to find another, possibly less lucrative, place to put your money. When you buy a bond, the prospectus will indicate whether a bond is callable and give you a "yield-to-call" figure. If you have a choice, buy a bond without the call option.
Inflation By far, the greatest danger for a buy-and-hold bond investor is a rising inflation rate. Nothing spooks bond traders more than cheerful headlines about full employment or strong economic growth. When the economic news is good, the bond markets often take it as a bad sign -- a harbinger of an impending period of slowly rising consumer prices. The hotter the economy, the worse the threat. And the more downward pressure on bond prices.
Why is inflation such a problem for bondholders? Think about it this way: Rising prices make today's dollars worth less in the future than they're worth today. Since a bond can lock up your money for as long as 30 years, a rising rate of inflation can have a particularly corrosive effect.
All this explains why bond traders live in a hall of mirrors. What you or I might consider good news, they often consider bad. The bond market itself is a minute-by-minute referendum on the threat of inflation. If the threat is high, prices fall and yields -- or interest rates -- rise. This is often an excellent time to buy bonds. But if you own them already, you're stuck.
Yield vs. RiskInflation risk, credit risk and prepayment risk are all figured into the pricing of bonds. The more risk, the higher the yield. It's also true that investors demand higher yields for longer maturities. The reason for that is obvious -- given enough time, a once-healthy corporation can go bankrupt and suddenly lose the ability to pay its obligations. Inflation could run rampant, seriously eroding the purchasing power of that $1,000 you're supposed to get back in 30 years. These things are unlikely or you'd never invest in the first place. But the longer you tie your money up in a bond, the more at-risk it is statistically.
The credit quality of companies and governments is closely monitored by the two major debt-rating agencies; Standard & Poor's and Moody's. They assign credit ratings based on the entity's perceived ability to pay its debts over time. Those ratings -- expressed as letters (Aaa, Aa, A, etc.) -- help determine the interest rate that a company or government has to pay when it issues bonds. The market determines the price -- and thus the yield -- after that.
Tuesday, November 13, 2007
Market Info
Bonds are trading slightly higher this morning but may come under a little pressure later today, as Stocks have opened higher on the heels of strong earnings and future outlook from Wal-Mart.
Wal-Mart is a bellwether for the entire retail sector, and with the important Retail Sales report due tomorrow morning, Traders could now be expecting a strong Retail Sales number--which would be good for Stocks, but bad for Bonds. So I will be watching carefully as the day progresses, since Traders may position themselves into Stocks rather than Bonds.
Technically, Bond prices remain above the 25-day Moving Average. With little economic news for the day, Bonds will likely continue to be driven by Stocks. For now, I recommend to Cautiously Float, as long as Bonds remain above the 25-day Moving Average.
Wal-Mart is a bellwether for the entire retail sector, and with the important Retail Sales report due tomorrow morning, Traders could now be expecting a strong Retail Sales number--which would be good for Stocks, but bad for Bonds. So I will be watching carefully as the day progresses, since Traders may position themselves into Stocks rather than Bonds.
Technically, Bond prices remain above the 25-day Moving Average. With little economic news for the day, Bonds will likely continue to be driven by Stocks. For now, I recommend to Cautiously Float, as long as Bonds remain above the 25-day Moving Average.
Monday, September 24, 2007
Measure Twice-Cut Once. What happened?
MEASURE TWICE...CUT ONCE. And like this old saying advises, Fed Chairman Ben Bernanke and his Federal Open Market Committee probably measured their decision quite a few times before making their recent ..50% cut to the Fed Funds Rate. But if the Fed's history of making cuts and hikes in cycles continues - this cut is probably not a "one and done".
Here's what the Fed had to say as they announced the cut: "Economic growth was moderate during the first half of the year, but the tightening of credit conditions has the potential to intensify the housing correction and to restrain economic growth more generally. Today's action is intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and to promote moderate growth over time." This means that the Fed will take whatever steps are necessary in terms of rate cuts to try and prevent a possible recession, so long as inflation remains in check.
Initially, both Stocks and Bonds rallied on the comforting words from the Fed - but as Bond Traders analyzed the potential future impact of the Fed cut over the following days, they started selling off Bonds with both hands, causing fixed home loan rates to rise by ..125 to ..25%, actually higher than where they stood before the Fed Rate Cut. What happened?
Traders realized that a Fed Funds Rate cut could encourage increased spending by consumers and businesses, as borrowing costs will now be cheaper for Home Equity Lines of Credit, consumer loans like car loans and credit cards, and business loans as well. In turn, increased spending can translate into increased inflation in the long run - and inflation is bad news for Bonds. Bonds deliver a fixed rate of return, and the value of that return is eroded by inflation. So Bond Traders sold, the price of Bonds moved lower, and home loan rates moved higher as a result. Counterintuitive to many...but its reality, and now you understand what many do not - including much of the mainstream media
Here's what the Fed had to say as they announced the cut: "Economic growth was moderate during the first half of the year, but the tightening of credit conditions has the potential to intensify the housing correction and to restrain economic growth more generally. Today's action is intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and to promote moderate growth over time." This means that the Fed will take whatever steps are necessary in terms of rate cuts to try and prevent a possible recession, so long as inflation remains in check.
Initially, both Stocks and Bonds rallied on the comforting words from the Fed - but as Bond Traders analyzed the potential future impact of the Fed cut over the following days, they started selling off Bonds with both hands, causing fixed home loan rates to rise by ..125 to ..25%, actually higher than where they stood before the Fed Rate Cut. What happened?
Traders realized that a Fed Funds Rate cut could encourage increased spending by consumers and businesses, as borrowing costs will now be cheaper for Home Equity Lines of Credit, consumer loans like car loans and credit cards, and business loans as well. In turn, increased spending can translate into increased inflation in the long run - and inflation is bad news for Bonds. Bonds deliver a fixed rate of return, and the value of that return is eroded by inflation. So Bond Traders sold, the price of Bonds moved lower, and home loan rates moved higher as a result. Counterintuitive to many...but its reality, and now you understand what many do not - including much of the mainstream media
Wednesday, September 12, 2007
Mortgage Bonds are unchanged
Mortgage Bonds are unchanged after being pressured lower yesterday. Bond Traders took some of their recent profits following an uneventful speech by Federal Reserve Chairman Ben Bernanke, as he did not give any hints about a rate cut.
Also weighing on bond prices yesterday was a strong showing in the stock market. In sessions when there has been an absence of market-moving economic news, as has happened recently, Stocks and Bonds have traded in opposite directions. Yesterday Stocks bounced back to the upside and Bonds were sold. With no major economic news to grace the airwaves again today, we could see Bond prices once again engage in a little tug of war with Stocks.
Bonds remain overbought and appear poised to follow the path of least resistance lower. However, should Stocks stumble in this lean news environment, any selling of Bonds could be tempered.
Also weighing on bond prices yesterday was a strong showing in the stock market. In sessions when there has been an absence of market-moving economic news, as has happened recently, Stocks and Bonds have traded in opposite directions. Yesterday Stocks bounced back to the upside and Bonds were sold. With no major economic news to grace the airwaves again today, we could see Bond prices once again engage in a little tug of war with Stocks.
Bonds remain overbought and appear poised to follow the path of least resistance lower. However, should Stocks stumble in this lean news environment, any selling of Bonds could be tempered.
Thursday, September 6, 2007
Mortgage Bond are flat
"Mortgage Bonds are flat after yesterday's rally, but now Traders are looking ahead to tomorrow's important Jobs Report.
Current estimates are for 110,000 new jobs created; however, if the number is much worse than expected, we will probably see bonds improve. But any rally may be tempered, since many Traders may already be factoring in a miss.
If the number comes in stronger than expected--which I don't think will happen, but if it does--Bonds will drop sharply, causing home loan rates to rise.
I feel the prudent play is to be conservative and Lock ahead of the Jobs Report."
Current estimates are for 110,000 new jobs created; however, if the number is much worse than expected, we will probably see bonds improve. But any rally may be tempered, since many Traders may already be factoring in a miss.
If the number comes in stronger than expected--which I don't think will happen, but if it does--Bonds will drop sharply, causing home loan rates to rise.
I feel the prudent play is to be conservative and Lock ahead of the Jobs Report."
Wednesday, September 5, 2007
Current Trend Dorection: Sideways
MMG Update - Wednesday, September 5, 2007 9:49am ET
Current Trend Direction: Sideways
Risks favor: Cautiously Floating
Current Price of FNMA 6.0% Bond: $99.84, +6bp
The ADP Employment Report came in showing private sector job growth of only 38,000 jobs during August, the smallest monthly total in four years. After factoring in government Job growth, the ADP data suggests this Friday’s official Jobs Report from the Labor Department will show Non-Farm payroll growth around 65,000 – far below the current consensus estimate of 123,000 new jobs.
Even though the ADP report has been a less than stellar indicator for the official Jobs number of late, Traders are listening to the report this morning and are pushing Bonds modestly higher.
Speaking of jobs, employment consulting firm Challenger, Gray & Christmas, announced today there was an 85% jump in corporate layoffs during August from July levels. Of no surprise to us in the mortgage business, the financial sector led the way with 35,752 layoffs from a total of 79,459. Mortgage and sub-prime lending companies took the brunt of the layoffs from the financial sector.
We will lay out our Jobs Report strategy in tomorrow's update, but we have been saying for some time we think the Jobs Report will come in lower than expectations. The recent spike in Initial Claims, the weak ADP and jump in corporate layoffs gives us more confidence that Friday's Jobs Report will indeed miss expectations.
At 2pm ET, the Federal Reserve’s “Beige Book” summarizing the current state of the economy will be released. This could be a potential market mover as Traders will sift through the document looking for any hints or clues from the Fed as to their next move.
Mortgage Bonds continue to trade sideways with a pending breakout on its way. If you take a peek at yesterday's update and chart you can see how the prices are being squeezed between a Falling Resistance Line and Rising Support Line. With prices now trading exactly between resistance at the 200-day Moving Average and support at the 100-day MA, we are going to cautiously float for today and devise our strategy heading into the Jobs Report tomorrow.
Current Trend Direction: Sideways
Risks favor: Cautiously Floating
Current Price of FNMA 6.0% Bond: $99.84, +6bp
The ADP Employment Report came in showing private sector job growth of only 38,000 jobs during August, the smallest monthly total in four years. After factoring in government Job growth, the ADP data suggests this Friday’s official Jobs Report from the Labor Department will show Non-Farm payroll growth around 65,000 – far below the current consensus estimate of 123,000 new jobs.
Even though the ADP report has been a less than stellar indicator for the official Jobs number of late, Traders are listening to the report this morning and are pushing Bonds modestly higher.
Speaking of jobs, employment consulting firm Challenger, Gray & Christmas, announced today there was an 85% jump in corporate layoffs during August from July levels. Of no surprise to us in the mortgage business, the financial sector led the way with 35,752 layoffs from a total of 79,459. Mortgage and sub-prime lending companies took the brunt of the layoffs from the financial sector.
We will lay out our Jobs Report strategy in tomorrow's update, but we have been saying for some time we think the Jobs Report will come in lower than expectations. The recent spike in Initial Claims, the weak ADP and jump in corporate layoffs gives us more confidence that Friday's Jobs Report will indeed miss expectations.
At 2pm ET, the Federal Reserve’s “Beige Book” summarizing the current state of the economy will be released. This could be a potential market mover as Traders will sift through the document looking for any hints or clues from the Fed as to their next move.
Mortgage Bonds continue to trade sideways with a pending breakout on its way. If you take a peek at yesterday's update and chart you can see how the prices are being squeezed between a Falling Resistance Line and Rising Support Line. With prices now trading exactly between resistance at the 200-day Moving Average and support at the 100-day MA, we are going to cautiously float for today and devise our strategy heading into the Jobs Report tomorrow.
Thursday, August 30, 2007
MORTGAGE MARKETS
"The market volatility continues as Mortgage Bonds are trading higher after yesterday’s 34 basis point sell-off. Prices still remain below a very tough and now tested ceiling of resistance at the 200-day Moving Average.
The Preliminary Gross Domestic Product, or GDP, for the second quarter was revised to 4.0%, which was slightly below expectations of 4.1%. The number is better than Q1, but still a bit on the slow side.
Traders will be very focused on tomorrow's action which includes a speech from Fed Chair Ben Bernanke and the release of the Core Personal Consumption Expenditure; the Fed’s favorite measure of consumer inflation.
For today, I am recommending to float ahead of tomorrow's events."
The Preliminary Gross Domestic Product, or GDP, for the second quarter was revised to 4.0%, which was slightly below expectations of 4.1%. The number is better than Q1, but still a bit on the slow side.
Traders will be very focused on tomorrow's action which includes a speech from Fed Chair Ben Bernanke and the release of the Core Personal Consumption Expenditure; the Fed’s favorite measure of consumer inflation.
For today, I am recommending to float ahead of tomorrow's events."
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