Morning Report - Existing home sales fall

Vital Statistics:

	Last	Change	Percent
S&P Futures	2102.7	-4.4	-0.21%
Eurostoxx Index	3504.3	13.8	0.40%
Oil (WTI)	48.92	-1.9	-3.72%
LIBOR	0.263	0.001	0.42%
US Dollar Index (DXY)	94.72	0.465	0.49%
10 Year Govt Bond Yield	2.09%	-0.02%
Current Coupon Ginnie Mae TBA	102	0.0
Current Coupon Fannie Mae TBA	101.3	0.2
BankRate 30 Year Fixed Rate Mortgage	3.97

Markets are lower this morning in spite of a loan extension for Greece. Bonds and MBS are up small.

Existing home sales fell to a 4.82 million unit pace in January from an upward-revised 5.07 million pace in December, according to the National Association of Realtors. Inventory is still tight at 4.7 months (6.5 is more or less a balanced market), but it is up from 4.4 months in December. The median home price is $199,600, an increase of 6.2% year over year. All cash transactions were 27%, down from 33% a year ago, and distressed sales were 11%, down from 15% a year ago. 

Janet Yellen will make her semiannual trek to the Hill to discuss monetary policy in front of Congress. The prepared remarks will undoubtedly be closely parsed, and the sense on the Street is that Yellen wants to lower expectations somewhat for a June rate hike. Aside from that, HH is generally a waste of time for market watchers. These are generally for the benefit of politicians who like to use it as a platform to pontificate on issues important to them.  The left will try to get her to agree with their views on inequality and the minimum wage, while the right will probably go after the long-term risks of ZIRP. It will be interesting to see if someone asks about the "audit the Fed" movement. She testifies in front of the Senate tomorrow at 10:00 am EST, and in front of the House on Wed.

A deal in the servicing field this morning: New Residential is buying subprime servicer Home Loan Servicing Solutions for $1.3 billion. HLSS has been examining strategic alternatives since last November, and the stock is up smartly. The servicing sector as a whole has gotten slammed from the Ocwen mess and the drop in interest rates. 

Speaking of servicing, Ocwen is trying to sell a 9.8 billion servicing portfolio to Nationstar.

If the US economy is improving (and all evidence says it is), why are banks still piling into Treasuries?  There are a couple of reasons. First, is Basel III. They were required by the regulators to increase their holdings of Treasuries. Second, if you look at the Bloomberg total return index on US Treasuries over the past year, they returned 8.8% in 2014. That includes periodic interest and capital gains. Compare that to the typical rate on a business development loan, or a line of credit paying LIBOR + 200 or something. Treasuries are working. And given the yields in European bonds, and the strength of the dollar, there is an underlying foreign demand for Treasuries. Yes, at some point Treasuries will become an awful bet, but that won't happen until inflation kicks in and that isn't happening at the moment. 

Chart: Bloomberg 10 year Treasury total return index: