Morning Report - Dull week ahead

Vital Statistics:

	Last	Change	Percent
S&P Futures	1946.6	-2.7	-0.14%
Eurostoxx Index	3292.7	-1.5	-0.05%
Oil (WTI)	103.5	0.8	0.79%
LIBOR	0.231	0.001	0.41%
US Dollar Index (DXY)	80.57	0.162	0.20%
10 Year Govt Bond Yield	2.61%	0.02%
Current Coupon Ginnie Mae TBA	106.6	0.0
Current Coupon Fannie Mae TBA	105.5	-0.1
BankRate 30 Year Fixed Rate Mortgage	4.17

Stocks and bonds are down small on no real news. No economic data today.

The week after the jobs report is typically dull, with very little economic data. The highlight of the week will probably be retail sales on Thursday. Earnings season is over, and we aren't close enough to the end of the quarter for companies to start confessing they will miss their numbers. 

Merger Monday is back, with $13 billion in announced deals. With low interest rates and organic growth hard to come by, we will be seeing more and more deals. 

In the "it's hip to be square" category, the Spanish 10 year yields less than the US 10 year. Yes, Spain - the "S" in the PIIGS cohort can borrow money for 10 years cheaper than Uncle Sam. This undoubtedly has to do with Mario Draghi charging banks to hold money at the ECB, but it is still an astounding thing to see. 

TBA trading has decoupled somewhat from Treasury trading lately. Last week, the 10 year bond yield increased 11 bps, while Ginnie and Fannie TBAs were flat. The Bankrate 30 year mortgage rate increased 2 bps. Mortgage rates seem to be ignoring the volatility in the bond market.

FHFA is asking for input on the delayed G-fee hike. For those not in the mortgage banking business, G-fees (short for guaranty fees) are the cost of mortgage insurance by the government for conforming mortgages. The borrower pays these costs. Historically the government has undercharged for this insurance, which amounts to a housing subsidy. Of course G-fee increases have been used as a slush fund - two increases were used to fund a payroll tax cut extension - so the perilous state of the FHFA insurance fund is not 100% due to insufficient G fees. But there is no doubt the government underpriced this insurance. FHFA Director Mel Watt put the latest fee increase on hold to study a bit more, and the affordable housing crowd is worried that these increases are making mortgages and housing unaffordable. That said, these hikes are also the process of price discovery, where the government is raising fees to see at what point private capital starts to compete by offering a similar insurance wrap. Once they hit that price, then the idea is to allow private capital to "crowd in" or replace government backed mortgages. Right now, the US taxpayer is backing about 90% of new origination. You can see on the chart below, we have more than doubled the G-fee since the crisis began.