July 12th, 2017 9:37 AM by Richard Sardella MLO.100007700
Interest rates declining this morning, the 10-yr. note yield at 9:00 am EDT 2.31% -5 bps; FNMA 3.5 30 yr. coupon +27 bps from yesterday’s 9 bp increase. The improvement so far, a reaction to Yellen’s prepared statement to the House Financial Services Committee that was released at 8:30 this morning.
Janet Yellen at the House Financial Services Committee at 10:00 am, but her prepared text was released at 8:30. She repeats that tapering will begin sometime this year and that a limited number of gradual rate hikes will extend over the next few years. She did echo comments from Leal Brainard (Fed Governor) yesterday that interest rates may not have to increase much more to come to a neutral bias, saying the neutral rate is "quite low" by historical standards and that the funds rate doesn't have far to go to hit a neutral stance for policy. On inflation, she sees it as a result of cheaper cell phones, drugs and oil; and said she isn’t sure when inflation would begin to increase. That in itself is a major retreat from her and the Fed’s previous comments that inflation is "just around the corner." On the unwinding of the $4.5 trillion Fed balance sheet, she also softened a little, commenting that the reducing of the balance sheet is still unknown and that the Fed does not intend to use unwinding as a policy tool. On the economy, she said odds are 50-50 whether growth proves stronger or softer than expected and she gave an upgrade to the global economy. Overall the statement is a lot less hawkish than what markets were expecting. When the Q&A begins later this morning she is likely to face a lot of questions on details.
Given the almost total belief that the Fed would continue tightening and the forecast of much higher interest rates that have been built into thinking, her statement has roiled the bond and stock markets this morning. Interest rates dropped, and stock indexes in pre-opening trading were higher.
Weekly MBA mortgage applications dropped; -7.4% from the previous week, purchase apps -3.0, refinances -13.0%, the lowest since January. The share of refinances declined to 42.1%, down 2.8% from last week. The MBA did make adjustments, taking into account the 4th of July holiday. On an unadjusted basis, purchase applications were down a much sharper 22 percent from the previous week. The weekly decline shaved the year-on-year purchase index gain by 3 percentage points to 3 percent. Higher interest rates getting the blame. Volume now 36% below one year ago.
This morning, the FNMA coupons rolled over from July to August; a price decline of about 20 bps between July and August.
Crude oil this morning increasing over $1.00 as the bearish bias lessens.
The Donald Jr. news is also adding some concern as it unfolds. His meeting with a Russian lawyer he was told was a Russian government lawyer who had incriminating information about Democratic candidate Hillary Clinton could lead investigators to probe whether he violated U.S. election law, experts said. The emails, tweeted by Trump Jr. on Tuesday, could provide material for Special Counsel Robert Mueller's probe into possible collusion between the Trump campaign and Russia during the 2016 presidential election.
This afternoon at 1:00 pm, Treasury will sell $20B of 10 yr. notes, re-opening the issue of the May note. Given the decline in the 10 rate this morning, the demand will be interesting.
Mitch McConnell, Senate Majority Leader, commenting today that he expects a vote on the health care bill as soon as next week. 10 Senate Republicans remain publicly opposed to the legislation. With Democrats unlikely to support the bill. McConnell can’t lose more than 2 Republicans to get any bill passed. In a reversal, the proposed legislation would keep the Affordable Care Act’s two taxes on high-income households.
A very nice start this morning, but our technical indicators for the very near term still bearish but trading at key levels this morning. Yellen’s Q&A today and tomorrow in the Senate should be monitored for additional clues. Her statement this morning a lot more dovish than what has been thought, the reaction so far today is more a move to remove some of the bearish trades that had built over the last two weeks, not a lot of new long positions so far. The Fed and its members have a way of twisting the pretzel, so be alert through the day.
PRICES @ 10:00 AM
10 yr note: +11/32 (34 bp) 2.33% -3 bp (+2 bp from 9:30)
5 yr note: +9/32 (28 bp) 1.87% -4 bp
2 Yr note: +2/32 (6 bp) 1.36% -2 bp
30 yr bond: +20/32 (63 bp) 2.89% -3 bp
Libor Rates: 1 mo 1.223%; 3 mo 1.303%; 6 mo 1.462%; 1 yr 1.752%
30 yr FNMA 3.5 Aug: @9:30 102.64 +23 bp (+33 bp from 9:30 yesterday, but there is the roll-over)
15 yr FNMA 3.0: @9:30 102.75 +19 bp (++24 bp from 9:30 yesterday)
30 yr GNMA 3.5: @9:30 103.42 -3 bp (+7 bp from 9:30 yesterday)
Dollar/Yen: 113.23 -0.69 yen
Dollar/Euro: $1.1413 -$0.0055
Dollar Index: 95.94 +0.18
Gold: $1220.20 +$5.50
Crude Oil: $45.97 +$0.93
DJIA: 21,554.12 +145.05
NASDAQ: 6243.38 +50.07
S&P 500: 2441.93 +16.40
Richard Sardella has been actively managing and providing services in the mortgage industry for over 27 years. Richard serves on the board of directors as President of Colorado Home Mortgages Inc.
All information furnished has been forwarded to you and is provided by thetbwsgroup only for informational purposes. Forecasting shall be considered as events which may be expected but not guaranteed. Neither the forwarding party and/or company nor thetbwsgroup assume any responsibility to any person who relies on information or forecasting contained in this report and disclaims all liability in respect to decisions or actions, or lack thereof based on any or all of the contents of this report.
MLO of record MLO.100007700 / NMLS#233568 / CHM NMLS#127716.