Morning Report: Bond yields rise on a weak 10 year auction

Vital Statistics:

	Last	Change
S&P Futures	2149.0	4.0
Eurostoxx Index	337.6	1.4
Oil (WTI)	46.4	-0.4
US dollar index	87.0	0.1
10 Year Govt Bond Yield	1.47%
Current Coupon Fannie Mae TBA	103.3
Current Coupon Ginnie Mae TBA	104.2
BankRate 30 Year Fixed Rate Mortgage	3.48

Markets are higher this morning on no real news. Bonds and MBS are up.

Bond yields rose dramatically yesterday on hopes of future stimulus. The 10 year was trading around 1.52% yesterday after lower than expected demand at a Treasury auction. Yesterday, Germany auctioned 10 year bunds at a yield of -.05%. Yields worldwide are heading lower this morning. Note that MBS are still largely ignoring the volatility, although we did see some reprices yesterday. 

Mortgage Applications rose 7.2% last week according to the MBA. Purchases were flat, while the refi index rose 11%. Note this was a short holiday week and we still saw a big increase in refis. 

Import prices rose 0.2% MOM and are down 4.8% YOY. The strength in the US dollar (or as Bill Gross says, the cleanest dirty shirt) is driving the drop. Yet another reason why the Fed can't seem to find inflation anywhere. 

Bernie Sanders made it official yesterday and endorsed Hillary Clinton. Meanwhile, Mitt Romney and Jeb Bush are considering backing Libertarian Gary Johnson. The GOP convention is this weekend, and promises to be a spectacle between the #NeverTrump crowd and the expected protests from the left. Here is how the #NeverTrump crowd can block his nomination. 

The Atlanta Fed is now estimating that US GDP growth increased at a 2.3% pace in the second quarter. This is a drop of 0.1% from their estimate a week ago. 

James Bullard believes that Brexit will have almost no US impact. Loretta Mester said more or less the same thing as well. The main effect will probably be a stronger dollar and lower interest rates in the US. 

One of the biggest effects of the financial crisis may be rolling off: Those who had short sales and foreclosures in 2009 - 2010 are reaching the end of the 7 year no mortgage period and become eligible to borrow again. 

Morning Report: Yellen calms the markets

Vital Statistics:

	Last	Change	Percent
S&P Futures	1866.6	-17.9	0.92%
Eurostoxx Index	2882.8	-13.8	-0.48%
Oil (WTI)	27.85	-0.1	-0.40%
LIBOR	0.619	0.001	0.10%
US Dollar Index (DXY)	96.44	-0.850	-0.87%
10 Year Govt Bond Yield	1.74%	0.02%
Current Coupon Ginnie Mae TBA	105.3
Current Coupon Fannie Mae TBA	104.7
BankRate 30 Year Fixed Rate Mortgage	3.69

Stocks are higher this morning based on prepared testimony for Janet Yellen's appearance before Congress. Bonds and MBS are down small.

Keep in mind that the Chinese stock market is closed all week in observance of the Chinese New Year, so the biggest catalyst for downside movement in the markets will be absent this week. 

Janet Yellen is traveling to the Hill for her Humphrey Hawkins testimony. In her prepared remarks she did spend some time talking about the turmoil in the financial markets and that acknowledgement was soothing enough to stocks to give them a boost. Overall, however the message is that the US economy is improving, and rate are going up gradually. The rest of the testimony will probably be a bunch of ideological questions from various congresscritters trying to get the Chairman of the Fed to agree with their ideological worldview. 

Goldman is forecasting 3 rate hikes in 2016. Given the overall weakness in the global economy and the rush to negative interest rates globally, it may not affect long-term interest rates in the US (or mortgage rates for that matter).

Blackrock is forecasting that US growth has probably peaked for the near term as more and more central banks enter the negative interest rate vortex. I wonder what our grandkids will think about today's PhD standard. If it ends up not working, do we go back to the gold standard?

In New Hampshire, Bernie Sanders won the Democratic primary vote, and Donald Trump won the Republican primary vote. John Kasich had a surprisingly strong showing.

Mortgage Applications rose 9.3% last week as purchases were up 0.2% and refis were up 15.8%. The refi index has had a nice run since rates started collapsing, but we are nowhere where we used to be compared to 2013.

Competition in the jumbo market is fierce, and the typical rate for a jumbo is now 15 basis points below a conforming mortgage. Historically, jumbos have cost an extra 25 basis points to the borrower. 

Do you think your underwriters are approving too many shaky loans? Move them to Seattle. Are they too conservative? Move them to San Diego. 

Morning Report: Since the Fed hike, bond yields have dropped 42 basis points.

Vital Statistics:

	Last	Change	Percent
S&P Futures	1912.5	-18.8	-0.97%
Eurostoxx Index	2972.3	-48.7	-1.61%
Oil (WTI)	30.16	-1.5	-4.62%
LIBOR	0.613	-0.003	-0.49%
US Dollar Index (DXY)	98.89	-0.119	-0.12%
10 Year Govt Bond Yield	1.90%	-0.05%
Current Coupon Ginnie Mae TBA	105.1
Current Coupon Fannie Mae TBA	104.6
BankRate 30 Year Fixed Rate Mortgage	3.76

Stocks are getting roughed up a little as overseas markets and oil continue to fall. Bonds and MBS are up sharply, with the 10 year trading just below 1.9%.

The ISM New York Index fell from 62 to 54.6 while the IBD / TIPP Economic Optimism Index ticked up slightly to 47.8. 

The winners in Iowa last night were Ted Cruz and Hillary Clinton. Unofficially, the winners were Rubio and Bernie. The losers? Donald Trump and the pollsters who had him in the high 40s. He came nowhere near that. Note that there are allegations of tomfoolery on the Democratic side with vote counting..

The correlation between global stock markets and the price of oil is somewhat strange - historically, high oil prices were considered bad for stocks, not good. While the drop in oil prices is certainly not good news for the big integrated energy companies, it is great news for consumers. Overall, the US benefits from low oil prices. The action in the stock market may be viewing the oil price as the canary in the coal mine for the global economy. 

For the time being, the drop in commodities and stocks is keeping a lid on interest rates, which is a good thing for originators. The 10 year is heading back to late winter / early spring of 2015 lows. Fun fact, since the Fed raised the Fed Funds rate on December 16th, the 10 year bond yield has dropped 42 basis points. The trader in me says bond yields have fallen too far too fast.  Loan officers, if you have someone floating, try and lock 'em.  And wake up any potential borrowers who missed out on refinancing the last time around. 

Delinquency rates continue to fall, according to Fannie Mae. In December, the seriously delinquent rate fell to 1.55% from 1.58% in November and 1.89% a year ago. Home price appreciation and an improving job market are doing their jobs. 

With house price appreciation increasing well in excess of wage inflation, how affordable is housing these days? It depends on the statistic you use. If you look at the median house price versus the median income, you would conclude that housing affordability is approaching the lows of the bubble. However, if you look at the mortgage payment on the median house divided by median income, housing is at pre-bubble levels affordability-wise. Another argument to find people with ARMs and refi them in to 30 year fixed rate mortgages. 

Morning Report - Awaiting the FOMC minutes

Vital Statistics:

	Last	Change	Percent
S&P Futures	2125.2	0.6	0.03%
Eurostoxx Index	3663.6	-7.0	-0.19%
Oil (WTI)	58.56	0.6	0.98%
LIBOR	0.276	-0.001	-0.18%
US Dollar Index (DXY)	95.32	0.049	0.05%
10 Year Govt Bond Yield	2.25%	-0.04%
Current Coupon Ginnie Mae TBA	101.4	-0.4
Current Coupon Fannie Mae TBA	100.8	0.3
BankRate 30 Year Fixed Rate Mortgage	3.91

Back from the MBA Secondary Conference in NYC. Generally the mood was upbeat, although regulatory issues weighed on everyone. Lots of talk about TRID.

Markets are flattish this morning as retailers report first quarter earnings. Wal Mart missed big yesterday, while Target came in better than expected this morning. Overall, the savings from lower gas prices are not being spent - they are being saved. In the battle of the home improvement stores, the Home Despot was the winner over Lowe's this spring. 

Catching up on economic data, the NAHB Housing Market Index fell to 54 from 56. Housing Starts came in well above expectations, at 1.135 million. Building Permits rose to 1.143 million as well. So, at least housing rebounded smartly after a tough Q1, however most other indicators (especially manufacturing-related) have not. Blame the dollar. 

Chart: Housing Starts: 2000-Present

Mortgage Applications fell 1.5% last week, according to the MBA. Purchases fell 3.7% while refis were up .3%. 

This afternoon, we will get the FOMC minutes. Of particular interest will be any mention of the huge bond market volatility we have been seeing, particularly emanating from Europe. Also look for their characterization of the first quarter weakness and the lack of a meaningful rebound. Janet Yellen will also be speaking at 1:00 pm EST. We could see some volatility in rates early this afternoon. 

It is no secret that Bernie Sanders hates, hates, hates the financial sector. He has a new plan to fund free college education with a special tax on Wall Street. This is just election fodder to pull Hillary to the left and it is going absolutely nowhere. 

Angela Merkel has given Greece until the end of the month to reach a deal with its creditors. 

Morning Report: Q1 GDP flatlines in Q1

Vital Statistics:

	Last	Change	Percent
S&P Futures	2103.5	-8.5	-0.40%
Eurostoxx Index	3666.1	-49.3	-1.33%
Oil (WTI)	57.18	0.1	0.21%
LIBOR	0.279	0.000	0.00%
US Dollar Index (DXY)	95.46	-0.637	-0.66%
10 Year Govt Bond Yield	2.04%	0.04%
Current Coupon Ginnie Mae TBA	102.4	-0.3
Current Coupon Fannie Mae TBA	101.6	-0.2
BankRate 30 Year Fixed Rate Mortgage	3.81

Markets are subject to some push-pull this morning with stronger data out of Europe and weaker data out of the US. Bonds and MBS are down. 

Bonds are getting roughed up this morning after Germany reported inflation that was higher than expected. The German Bund is trading at 26.3 basis points, up 10 basis points this morning. This has pulled US Treasuries lower. Note the Fed rate decision is scheduled for 2:00 PM EST. 

Stocks on the other hand are dealing with a huge miss on GDP. The advance estimate came in at +0.2% for the first quarter. The Street was already expecting weakness due to the weather, however the number still missed the +1.0% street estimate by a wide margin. Consumption growth fell to 1.9% from 4.4% in the fourth quarter. Investment fell from 3.7% to 2.0%. Government spending improved from -1.9% to -.7%, although that was driven by decreases in defense and increases in non-defense spending. Finally, the trade balance decreased a little. 

This number is going to be subject to two more revisions, and I would expect this number to be revised upward. Most economic data do not suggest that growth ground to a halt in Q1, just that it slowed down from Q4's +2.2%. I suspect this will seal the deal that the first rate hike will be in September, not June.

Mortgage Applications fell 2.3% last week, as purchases were flat and refis fell 3.7%. 

Pending Home Sales rose 1.1% in March, more or less in line with estimates. 

Financial professionals can expect more invective thrown their way. Bernie Sanders (I-VT) is throwing his hat in the ring. Sanders, a socialist, will run on the Democratic ticket and try and pull Hillary to the left.