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Mortgage Rate Forecast – May 13, 2011

Locking Stance:  LOCKING      Mortgage Bonds:  +19bp

Today’s Mortgage Rate Forecast is a late one, I know.  I did not get to it before my body “crashed” after being up virtually all night.  The bottom line…yes, mortgage backed securities improved and, no, they still have not broken the 200-day moving average so nothing has genuinely changed.  This being Friday the 13th, spooky things happen, at least for those of you who are superstitious.

It is not uncommon to see MBS prices bouncing back and forth.  Anyone following them, and especially those following my mortgage rate forecasts for a while, know this and understand I take those movements into account when I do my forecasts.  Today’s data, as mentioned yesterday, got started with the Consumer Price Index (CPI), which came in at 0.4%, inline with expectations.  However, Core CPI (less food and energy) was at 0.2% versus the 0.1% expected, and that raises some concerns despite inflation still proving tame.  Additionally, year/year CPI and Core CPI are on the rise, coming in at 3.1% and 1.3% respectively.  Consumer Sentiment was the other item on the agenda for today, coming in at 72.4, above the expected 70.0and up from 69.8.  Pessimism is on the decline and inflation concerns are mixed within the report.

With the economic reports generally being unfavorable for MBS prices, and thus mortgage rates, why are we talking about a rally?  Well, technically speaking, it had to happen.  MBS prices bounced off support and thus rallied, this one all the way up to their 200-day moving average before being beaten back yet again, another technical play.  So, the bottom line again is that nothing has changed, though it is setting up a potentially bad pattern for the future.  More on that in Monday’s radio show.  Positive economic news overseas got the dollar falling initially, but it hit technical factors as well and rebounded.  On an interesting note, a report said Osama planned to kill Obama (bin laden planned to kill our President), which I find illegitimate since our President and his appointees are doing a smashup job destroying our country without terrorist assistance.    Nevertheless, it seems almost as though the markets reversed (stocks rallied) after the report.  Things that make you go hmmmmmm…

What does this mean for Mortgage Rates? Mortgage rates improved this morning, but they also are failing yet again to break resistance and push lower.  As a result, the short-term and long-term outlooks are unchanged.  Depending on how things play out as next week gets started, those outlooks could get worse.

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Mortgage Rate Forecast–May 12, 2011

Locking Stance:  LOCKING      Mortgage Bonds:  -3bp

Mortgage backed securities had a nice day yesterday, but not nice enough and the 200-day moving average still repels their advances. 

Economic data today started with Jobless Claims coming in at 434K, slightly above the 430K expected, and that brings the 4-week moving average up a little more to 436.75K.  The weekly numbers are a nice rebound from the prior week, but still do not offer much comfort.  Retail Sales came in at 0.5%, a hint below the 0.6% expected.  March numbers were revised higher from 0.4% to 0.9%.  The numbers were inline at 0.6% for Retail Sales less autos.    Despite a soft number for ex-autos/ex-gasoline sales, the level of activity is still good taking into account upward revisions for March and three consecutive strong gains each of the months in the first quarter.  There likely is some slowing in sales from the impact of higher gasoline prices, but at this point, the effect appears to be modest.  And the Producer Price Index (PPI) came in at 0.8% versus 0.6%, not a good sign for mortgage rates, though this was somewhat expected after data earlier in the week suggested the same.  Core PPI came in at 0.3%, just above the 0.2% expected, which was not anticipated based on earlier data.  Tomorrow will see the Consumer Price Index (CPI) numbers and that may hit the market hard.  We also have to deal with today’s 30-year T-Bond Auction, which hopefully will go at least as well as the 3-year and 10-year T-Note Auctions, but this morning’s inflation numbers may put pressure on the auction.

As for Fed speeches, today has a couple, starting with Charles Plosser and followed by Ben Bernanke.  Plosser stated that there is no point in ending QE2 ahead of the announced schedule.  He stated that when accommodation is exited, it is still going to be a long time before monetary policy becomes tight.  He described first quarter weakness as "temporary" and anticipates second half growth to be moderate based on current fundamentals.  Bernanke gave brief comments similar to recent remarks on financial reform.  He avoided comments on current monetary policy, instead focusing on the need for addressing the too-big-to-fail problem. 

What does this mean for Mortgage Rates?  Mortgage rates are holding steady, but any improvements continue to be thwarted, keeping the short-term outlook favoring mortgage rates rising, at least a little.  The long-term outlook remains in question still, and likely will for some time, but the “forces” favor rising mortgage rates as well.

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Mortgage Rate Forecast–May 11, 2011

Locking Stance:  LOCKING      Mortgage Bonds:  -6bp

We had the monthly mortgage bond rollover (-25bp), which is skewing the charts and may actually be a good thing for mortgage rates remaining low.  That means we are actually up on the day today, but that also means the corrective move is not solid.

There were no major players regarding economic reports today.  The MBA Purchase Applications report showed Purchase Applications were up 6.7% and Refinance Applications were up 9.0%.  The US Trade Deficit widened on higher oil prices, coming in at $-48.2B, though there were also positives within the report.  Today’s 10-year T-Note Auction followed the lead of yesterday’s 3-year T-Note Auction, coming in with pretty decent results despite its higher amount.  That is essentially what is fueling the rise in MBS prices at the moment, but we still have that 200-day moving average to contend with.  A few Feds are speaking also today, though it does not appear they are stirring things up.

What does this mean fro Mortgage Rates?  Mortgage rates are holding fairly steady still, though the short-term outlook remains favoring a locking stance.  The longer-term outlook remains questionable at this point, so locking is still most likely the better choice.

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Mortgage Rate Forecast–May 10, 2011

Locking Stance:  LOCKING      Mortgage Bonds:  -9bp

Once again, the 200-day moving average is proving to be a solid layer of resistance and mortgage backed securities are edging lower this morning.

The NFIB Small Business Optimism Index came in at 91.2, a little lower than last report’s 91.9 and reflects an “anemic” pace of economic recovery.  The report’s data shows hiring plans inconsistent with the solid payroll gains from Friday’s Jobs Report, indicating the bulk of the hiring is occurring at large firms and not small businesses, meaning the “backbone” of our economy is not hiring.  Import Prices came in at 2.2% (11.1% y/y) and Export Prices came in at 1.1% (9.6% y/y), showing inflationary pressures moving into what are still subdued consumer prices.  With the main causes being food and energy, talk of increased non-core PPI and CPI numbers are likely.  Wholesale Trade came in at 1.1% indicating inventory build is strong, but not accelerating.  Elizabeth Duke was speaking and stated that the lack of a housing market recovery (OK, she said slow), will likely inhibit overall economic recovery for some time.  Jeffrey Lacker will be speaking just before the 3-year T-Note Auction this afternoon.

What does this mean for Mortgage Rates?  Mortgage rates are edging a bit higher after testing yet again their 200-day moving average.  Most likely, they will move higher still, at least for the short-term.  As for the long-term outlook, that is debatable at this point.

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Mortgage Rate Forecast – May 9, 2011

Locking Stance:  LOCKING      Mortgage Bonds:  +6bp

As I mentioned in today’s Mortgage Rate Forecast Weekly radio show, I do not see any reason to be floating right now.  The resistance of the 200-day moving average, coupled with the apparent lack of a solid corrective move over the last month, just leaves the risk/reward ratio out of whack to be doing anything other than locking.

If you missed today’s show, feel free to listen to it in the right sidebar.  There is no economic data slated for today, but things will begin to heat up with the first of several Treasury Auctions starting tomorrow, along with some economic data.  The end of the week has some key players, so be ready for things to “shape up” by week’s end as we get readings on the economy and inflation.

What does this mean for Mortgage Rates? Mortgage rates are holding steady and likely will continue to do so, if not make a corrective move higher from here.

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Mortgage Rate Forecast – May 6, 2011

Locking Stance:  LOCKING      Mortgage Bonds:  -19bp

Mortgage backed securities are doing much as expected at this point with a somewhat mixed (somewhat unfavorable) Jobs Jamboree and still unable to break the 200-day moving average.  Correction here we come.

I am still trying to figure out how to make a table on this Macbook Pro, so here are the numbers in a normal format.  Nonfarm Payrolls came in at 244,000, well above the 185,000 expected.  Private Payrolls, came in at 268,000, also well above expectations of 200,000.  The Unemployment Rate ticked higher to 9.0%, which is not really surprising, but that is what keeps this report mixed.  The Average Workweek remained at 34.3 hours and Average Hourly Earnings were up 0.1%, just shy of the 0.2% expected, also adding to the “mix”.  As mentioned, the overall Jobs Jamboree is generally unfavorable to MBS prices, and thus, mortgage rates.  The “rubber band” has been stretched too far and this report appears to be unable to keep the “snapback”, or corrective move, from happening, solidifying the “locking” stance.

What does this mean for Mortgage Rates? Mortgage rates are not likely to move lower, at least not yet.  We will most likely see mortgage rates edge higher before they make another attempt at moving lower, but any future attempts will have to have  a lot of strength behind them to push any lower than present levels.

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Mortgage Rate Forecast – May 5, 2011

Locking Stance: LOCKING      Mortgage Bonds: +19bp

As I mentioned earlier, I would not be surprised to see MBS prices reach their 200-day moving average, but that a corrective move is overdue according to the charts.

Jobless Claims got the day started with a jolt, coming in at 474K versus the 410K and up 43,000 from last week’s revised 431K.  That also sends the 4-week moving average up to 431.25K.   The Labor Department cited several factors for the dramatic jump.  The biggest factor is an adjustment timing for a spring break in New York state followed by a new emergency benefit plan in Oregon.  The third factor is the auto sector where claims related to retooling increased.  Note that possible layoffs tied to Japanese supply disruptions remain an uncertainty for the outlook.   Nonfarm Productivity was slightly better than expected at 1.6% versus 1.5% and Labor Costs were a little higher than expected at 1.0% versus 0.8%.  Ben Bernanke avoided discussing monetary policy during his speech.   Kocherlakota will be speaking later today, so we may not be out of the woods yet.

What does this mean for Mortgage Rates? Mortgage rates edged lower this morning for good reason, but we are now facing a major hurdle, one which mortgage rates will not likely clear on their first attempt, maybe even several or never.  That means that if you are still floating, stop.  The risk/reward ratio is no longer favorable and tomorrow’s Jobs Report could be the killer.

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Mortgage Rate Forecast – May 4, 2011

Locking Stance:  CAUTIOUSLY FLOATING      Mortgage Bonds:  +16bp

First off, my apologies for my “absence” across the spectrum.  I picked up a flight to Madrid, Spain over the weekend, which prevented Monday’s normal routine and yesterday I was building a new computer to replace my old desktop.  That, of course, took much longer than originally planned and I ended up installing every program (still am) from scratch on a new drive.  Nevertheless, I have kept abreast of what is happening in the markets and I have yet to change stances, so you really did not miss much except for me blabbing on about Osama bin Laden’s death and how it really doesn’t matter in the mortgage backed securities market.  Reality is overwhelming!

This week is all about jobs in essence, so let’s get into the data today.  Purchase Applications rose a scant 0.3% while Refinance Applications were up 6.0%, according to this week’s MBA Purchase Applications.  That translates to all being quiet still on the housing front.  The ADP Employment Report, that “forecaster” of Friday’s Jobs Jamboree, showed a slowing in growth of Private Payrolls, reporting 179,000.  That may very well drop estimates for Friday’s Jobs Report.  And then there is more disappointment in the form of a miss by the ISM Services Index, coming in at 52.8 versus the 57.0 expected.  That, along with some disappointments (though not as bad) overseas is triggering more stock sell offs and that drives money into MBS.

A quick look at the charts shows 13 straight green candles, breaking through resistance level after resistance level.  However, the “rubber band” can only stretch so much before it snaps back (corrective move), and stochastics are showing that being overdue.  We may make it all the way up to the 200-day moving average, but without a solid retracement for quite sometime, this snapback could be fairly significant.  The risk/reward ratio is about even right now, so make sure you remain ready to lock at a moment’s notice if you are floating still.

What does this mean for Mortgage Rates? Mortgage rates are edging lower still, but that trend may be coming to an end, at least briefly, in the near future.  Floating, with extreme caution, is still a viable play, but be ready to lock quickly when the correction begins, which could be coming quickly, or lurking in the not-to-distant future.

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Mortgage Rate Forecast – April 29, 2011

Locking Stance:  CAUTIOUSLY FLOATING*     Mortgage Bonds:  +6bp

Mortgage backed securities had a bit of a scare yesterday after the weak 7-year T-Note Auction, causing many rate alert providers to issue alerts to lock.  That proved to be a mistake, as I suspected (hence no new update), and MBS prices rebounded.  Today, they are showing some weakness as they are unable to break through resistance at current levels, but the outlook may not be all bad.  More on that later.

Today started off with the Core PCE report, the Fed’s favorite gauge on inflation.  Headline PCE came in at 0.4%, continuing to be “hot”, but Core PCE came in at 0.1%, inline with expectations and the year/year remained at 0.9%.  That means that core inflation is still tame in the Fed’s eyes (like we didn’t know that would happen).  Other components of the broader Personal Income and Outlays report were Consumer Spending and Personal Income.  Personal Income was up 0.5%, slightly more than the expected 0.4% and that brings its year/year to 5.3% (+0.2%).  Consumer Spending was up 0.6%, also slightly better than expectations of 0.5% and that brings its year/year to 4.6% (+0.5%).  The Employment Cost Index came in at 0.6%, up from 0.4%, but the year/year held at 2.0%.  Chicago PMI, another major player in the markets, came in just below expectations, at 67.6 versus 68.0, and that is down from 70.6, indicating economic growth is slowing.  Consumer Sentiment edged ever so slightly higher to 69.8 from 69.6 (expected to stay the same).   And Ben Bernanke is talking today, already blaming the slow economic recover on housing.  Well, if it is housing’s fault, we are likely going to see the economy tank more before it finally gets better.

What does this mean for Mortgage Rates? Mortgage rates are holding steady, though may tick higher short-term.  The long-term outlook is looking pretty good at the moment, but things could change still.  Lock if you are near closing, otherwise floating may prove beneficial.

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Mortgage Rate Forecast – April 27, 2011

Locking Stance:  LOCKING*      Mortgage Bonds:  -19bp

Mortgage backed securities are backing off a bit this morning after a decent runup to their next resistance layer (as I expected might happen).  They are now in need of a pullback, or correction, which seems underway.  The overall outlook, well, I will get into that in a moment.

The MBA Purchase Applications report showed Purchase Applications down 13.6% and Refinance Applications down 0.6%.  Certainly not good news for the housing market despite the recent increases in Housing Starts and Building Permits.  Of course, the rush to beat FHA insurance premium increases sort of set up the fall, so maybe it is not all that bad.  Yeah, right!  Durable Goods Orders came in at 2.5%, beating expectations of 1.9%, and that is up from -0.9% last report and brings the year/year to 10.5%.  Not good news for MBS prices, hence the fall this morning.  Ex-Transportation numbers show more of a mixed story, coming in at 1.3%, up from -0.6% and the year/year numbers dropped from 8.5% to 6.1%.  Crude Inventories will be released shortly, but don’t expect much market reaction.

Yesterday saw the 2-year T-Note Auction, the first of this week’s Treasury auctions.  The 2-year T-Note saw results went reasonably well with the bid/cover dropping only slightly despite more than a 10 basis point drop in the yield.  I would actually say it was fairly positive for mortgage rates remaining low.  Coming up shortly, at 12:30, is the FOMC Meeting Announcement, followed by the 5-year T-Note Auction and Ben Bernanke’s Chairman Press Conference.  Despite many Fed members turning against Bernanke’s “debase the dollar at all costs” philosophy, don’t expect much change today, though some wording may change in the Policy Statement.  Remember, we care more about the Policy Statement than what the Fed does with their Fed Funds Rate.  With the 5-year T-Note being just a half hour later, whatever direction the markets get going could become an exaggerated move and volatility may be quite wild later today.

What does this mean for Mortgage Rates? Mortgage rates may be ready to correct themselves, maybe even get considerably worse, from this point.  A lot will depend on today’s FOMC Announcement, which is not expected to change much this time around.  The safest course of action is to lock, though mortgage rates may yet improve down the road for those whom have the time before closing.  If you do decide to float, be ready to lock in an instant should things get ugly.

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