Morning Report - Good early indications on the Spring Selling Season

Vital Statistics;

	Last	Change	Percent
S&P Futures	2059.5	-2.7	-0.13%
Eurostoxx Index	3373.8	-9.4	-0.28%
Oil (WTI)	49.27	-0.8	-1.50%
LIBOR	0.258	0.003	1.08%
US Dollar Index (DXY)	94.77	0.014	0.01%
10 Year Govt Bond Yield	1.98%	-0.01%
Current Coupon Ginnie Mae TBA	102.8	0.0
Current Coupon Fannie Mae TBA	101.7	0.0
BankRate 30 Year Fixed Rate Mortgage	3.88

Stocks are lower worldwide as Greece and Germany continue to posture over future Greek bailouts. The Greek 10 year bond yield is up 33 basis points to 10.58%. Global bonds are up small, and MBS are flat.


Mortgage Applications fell 9% last week as rates backed up 32 basis points. Purchases were down 6.5% while refis were down 10.3%.


Hedge funds that bought distressed mortgage debt in 2008 and 2009 are unwinding their positions as spreads have tightened and real estate prices have risen. Probably next on the agenda is the unwind of the REO-to-Rental trade which has simply not lived up to the hype.


Homebuilder KB Home is doing a $250 million bond issue today. Separately, they announced new orders were up 25% so far this year. Key quote from CEO Jeffrey Metzger: "Based on our expanding community count and the strength of our recent net order results, we are optimistic about the spring selling season. We believe the momentum of these favorable trends, in combination with our solid backlog, support a positive revenue outlook for the remainder of the year, particularly in the third and fourth quarters.”


Lewie Ranieri's Shellpoint Partners rolled out their non-QM credit repair product in October, and they hope to do their first securitization of these loans this year. They believe the agencies will demand 15% credit enhancement for AAA tranches with high quality non-QM loans, and credit enhancement of 34%-40% for the tougher stuff: 620 FICO, 50 DTI, 80 LTV loans. Shellpoint lends through its New Penn unit. Sounds like we are getting closer to non-QM securitization.

Morning Report - Consumers are becoming more constructive on housing

Vital Statistics:

	Last	Change	Percent
S&P Futures	2056.0	13.6	0.67%
Eurostoxx Index	3388.9	41.1	1.23%
Oil (WTI)	52.24	-0.6	-1.17%
LIBOR	0.256	-0.001	-0.20%
US Dollar Index (DXY)	94.77	0.324	0.34%
10 Year Govt Bond Yield	2.00%	0.02%
Current Coupon Ginnie Mae TBA	102.5	0.0
Current Coupon Fannie Mae TBA	102	-0.1
BankRate 30 Year Fixed Rate Mortgage	3.85

Markets are higher this morning as the Greek government offered a compromise on the bailout. Bonds and MBS are down worldwide, with the US 10 year yield flirting with a 2 handle.

Greek 10 year bond yields are down 68 basis points as the Greek government and international creditors hammer out a deal.  This is fueling a risk-on trade as stocks rise / bonds fall. 

The NFIB Small Business Optimism Survey fell to 97.9 from 100.4 in January. Expectations were for a  101. The IBD / TIPP Economic Optimism Index fell in February from 51.1 to 47.5. Job Openings topped 5 million according to the JOLTS survey. 

Consumers are feeling a little better about the housing market, according to the Fannie Mae National Housing Survey. Expectations of home price appreciation rose to 2.5% from 2.3% a month ago, and almost half of respondents thing prices will go up in the next year. Americans are still negative on the economy, but less so, with 49% believing we are on the wrong track and 44% believing we are on the right track. 

Foreclosure Completions fell to 39,000 in December, a 4.9% drop month-over-month and a 13.7% drop year-over-year, according to CoreLogic. Current foreclosure inventory is 552k homes, a decrease of 34.3% from a year ago. New Jersey and New York continue to lead the US with the highest percentage of foreclosures. 

Morning Report - more on the jobs report

Vital Statistics:

	Last	Change	Percent
S&P Futures	2048.8	-2.7	-0.17%
Eurostoxx Index	3386.7	-22.2	-0.65%
Oil (WTI)	52.7	1.2	2.42%
LIBOR	0.255	0.000	0.00%
US Dollar Index (DXY)	93.98	0.407	0.43%
10 Year Govt Bond Yield	1.92%	-0.03%
Current Coupon Ginnie Mae TBA	103.5	0.1
Current Coupon Fannie Mae TBA	103	0.1
BankRate 30 Year Fixed Rate Mortgage	3.82

Markets are lower this morning on European weakness. Bonds and MBS are up.

This week is going to be relatively data-light, with retail sales being the highlight. 

Friday's jobs report was undeniably strong, but I would keep in mind one thing in the back of my mind: We are in a sort of a sweet spot, where lower energy prices are helping things along, but the big layoffs in the energy sector have yet to materialize. If energy prices stay here, producers will cut production and staff. Also, the Fed will start hiking rates in June and then all bets are off. 

Note that last week, Ginnie Mae TBAs underperformed Fannie Mae TBAs are rates shot up. I suspect this is still related to the new MI changes. The bottom line is that conforming pricing is getting more attractive relative to government pricing. 

The NY Times comments on the social engineering aspects of the housing market. Note that one of Bill Clinton's first acts was to prod Fan and Fred into increasing the homeownership percentage. That percentage is now back to 1994 levels more or less. Mel Watt is trying to push it up again, but really has limited tools given that he has to explicitly protect taxpayers and there is still not much of a private mortgage market. 

Never one to ignore technical progress, NAR is urging Congress to allow people to use drones to market homes...

Morning Report - Very strong jobs report

Vital Statistics:

	Last	Change	Percent
S&P Futures	2062.8	7.7	0.37%
Eurostoxx Index	3386.7	-22.2	-0.65%
Oil (WTI)	51.7	1.2	2.42%
LIBOR	0.255	0.000	0.00%
US Dollar Index (DXY)	93.98	0.407	0.43%
10 Year Govt Bond Yield	1.88%	0.06%
Current Coupon Ginnie Mae TBA	103.5	0.1
Current Coupon Fannie Mae TBA	103	0.1
BankRate 30 Year Fixed Rate Mortgage	3.85

Markets are higher this morning after a very strong jobs report. Bonds and MBS are down.

Jobs report data dump:

• Nonfarm payrolls + 257k
• Two month payroll revision + 147k
• Unemployment rate 5.7% (increase of .1%)
• Average Hourly earnings +.5% MOM
• Average Hourly earnings + 2.2% YOY
• Average Weekly Hours 34.6
• Labor Force Participation rate 62.9% (increase of .2%)
• Underemployment rate 11.3% (increase of .1%)

Overall, a very strong report, especially with the two month revision and the increase in wages. Bonds sold off hard on the number, although Euro bonds are off as well, so the global backdrop is "risk-on." BLS did the annual revision to the data series this month, so there may be some technical factors in the data. This report certainly adds weight to the hawks who want to see rates increase and worry that the Fed is behind the curve.

Notwithstanding the average hourly earnings increase, I still don't see much in the way of wage inflation. I suspect some of the increase is due to people who have variable compensation - people on commissions, people who get production bonuses, etc. When the economy improves, they do better, however that increase can be temporary. Are "base wages" increasing? It certainly doesn't fell like it is yet.

Final job report observation: the feared job losses in the energy patch have yet to materialize. 

Grandpa, tell me again about what it was like when interest rates were set by people in colorful jackets shouting at each other in a big room... Goodbye pit traders..

Morning Report - Principal mods on the horizon? Maybe

Vital Statistics:

	Last	Change	Percent
S&P Futures	2045.8	15.7	0.77%
Eurostoxx Index	3404.6	-10.9	-0.32%
Oil (WTI)	49.61	1.2	2.39%
LIBOR	0.255	0.003	1.19%
US Dollar Index (DXY)	93.78	-0.211	-0.22%
10 Year Govt Bond Yield	1.81%	0.06%
Current Coupon Ginnie Mae TBA	103.1	-0.3
Current Coupon Fannie Mae TBA	102.8	-0.2
BankRate 30 Year Fixed Rate Mortgage	3.85

Markets are higher this morning as Greece and Germany spar over bailouts for the Greek banking system. Bonds and MBS are down.

In economic data, initial jobless claims rose to 278k, higher than expected, but still good. Productivity fell 1.8% while unit labor costs rose 2.7%. Finally the trade deficit increased by $8 billion, dashing hopes for a big upward revision in Q4 GDP. 

Uber-dove Boston Fed President Eric Rosengren says they Fed can remain "patient" in terms of raising interest rates, given the deflationary winds from overseas. Rosengren is a non-voting member. Janet Yellen in the Dec FOMC press conference characterized "patient" as "more than two FOMC meetings away). So, if the Fed intends to move at the June meeting, that word will probably be gone in the March statement. Listen to the language of the different Fed heads going forward - if it starts disappearing from prepared statements, etc that fact is telling you something..

Grexit (the name for Greece leaving the Euro) will get a lot of discussion in the press, but it probably won't happen. Voters in Germany and Greece both support Greece staying in the Euro. Exporters like Germany benefit from the drag Greece (and the rest of the PIIGS) put on the Euro. The issue is that Germany, Finland etc don't trust the Greek government to make the necessary structural changes without the risk of being booted. In other words, much of what you will hear over the next few months will be posturing ahead of another bailout. 

Mel Watt is considering principal mods for underwater borrowers with loans held by FHFA. However, any plan will be "narrow" and will have to be done without incurring costs to the taxpayer. Interestingly, by cutting MI premium and G-fees, he is effectively increasing costs to taxpayers by increasing the chance they have to bail out the fund. Given that we are within 5% of peak levels, according to the FHFA Home Price Index, Mel can probably make this problem disappear by running out the clock. Note that Mel says mass principal forgiveness would cost the government billions. The Congressional Budget Office disagrees that a mass principal forgiveness program would cost anything. Looks like not even the Administration buys that argument...

Standard and Poors agreed to pay $1.5 billion in fines, without admitting wrongdoing. They have been forced to stop saying the suit was in retaliation for their downgrade of US Treasuries. Moody's - you're next. Hopefully Mark Zandi said enough nice things about the Administration that you'll get off easier...

Morning Report - What if?

Vital Statistics:

	Last	Change	Percent
S&P Futures	2032.5	-9.6	-0.47%
Eurostoxx Index	3398.3	-15.9	-0.47%
Oil (WTI)	50.8	-2.3	-4.24%
LIBOR	0.252	-0.001	-0.40%
US Dollar Index (DXY)	93.84	0.239	0.26%
10 Year Govt Bond Yield	1.81%	0.02%
Current Coupon Ginnie Mae TBA	103.1	-0.2
Current Coupon Fannie Mae TBA	102.8	-0.1
BankRate 30 Year Fixed Rate Mortgage	3.8

Stocks are lower this morning on no real news. Bonds and MBS are down as well.

The ISM Services Index rose in January to 56.7. The ISM manufacturing index fell however.

Mortgage Applications rose 1.3% last week. Purchases were down 2.3% while refis were up 2.5%. Note that FHA purchases and refis soared after the proposed change in MI.

The ADP Employment Survey came in at 213k jobs in January, lower than expected. The Street is looking for 230k jobs in this Friday's employment situation report. The big number for Friday will be wage growth, not necessarily the payroll number of the unemployment rate. 

Sign of the times: On the American Capital Agency conference call yesterday, one of the analysts asked the mortgage REIT giant "What happens to mortgage REITs if US Treasuries fall to German Bund type yields, below 50 basis point? What happens to the mortgage market? What happens to mortgage backed securities?" Six months ago, the question would be dismissed out of hand. No longer.

One thing is for sure - if that happens, stand by for the mother of all refi waves. 

Partying like it is 1997. Staples and Office Depot are merging. Interestingly, the Obama administration has had a very laissez-faire attitude about antitrust enforcement. Arbs better watch and see if Obama's newfound progressivism extends to antitrust. They could be in a for a rude shock.

Morning Report - The Bund passes the JGB

Vital Statistics:

	Last	Change	Percent
S&P Futures	2020.5	3.4	0.17%
Eurostoxx Index	3408.6	38.5	1.14%
Oil (WTI)	50.79	1.2	2.46%
LIBOR	0.253	-0.002	-0.59%
US Dollar Index (DXY)	94.25	-0.254	-0.27%
10 Year Govt Bond Yield	1.73%	0.07%
Current Coupon Ginnie Mae TBA	103.6	-0.2
Current Coupon Fannie Mae TBA	103.2	-0.3
BankRate 30 Year Fixed Rate Mortgage	3.79

Stocks are higher this morning after the Greek government backed off from the ledge and decided not to restructure their debt. The Greek 10 year is trading at 9.68%, down 126 basis points from yesterday. The German Bund has officially passed the Japanese Government Bond in yield. There is generally a risk-on feel as G7 debt gets sold to buy the PIIGS.

Vehicle sales are coming in strong this morning as we go through an upgrade cycle.

The ISM New York dropped by a lot in January, from 70.8 to 44.5. Factory orders fell 3.4%, but it could be weather-related.

James Bullard is speaking this morning, calling the 10 year yield "astonishingly low" and talking up the US economy.

Construction Spending rose .4% in December, lower than estimates. In his latest budget, Obama proposed a one time tax on overseas earnings to pay for infrastructure spending. Of course this is going to go nowhere as Republicans will only entertain special taxes like this in the context of overall corporate tax reform. Special taxes are going to be traded for lower rates, not stimulus spending. 

About 10% of US refining capacity is offline as a union walkout has launched the biggest strike since 1980. Talks have been going on since January 21. The workers want higher wages and to pay less in deductibles and premiums for health care. If the workers get what they want, it could mean that we will finally start seeing wage inflation in the US. Of course the other issue could be wage increases being eaten by rising healthcare costs...

Old merger arbitrage professionals might feel a sense of deja-vu. Office superstores Staples and Office Depot are in talks to combine. This is the second time these two companies tried to merger - the first time was blocked by antitrust regulators in 1997. (The internet? Whats that?) 

Banks are easing standards for mortgage loans, however some have noted weaker demand for mortgages linked to purchase activity, according to the Fed's Senior Loan Officer Survey. This is a strange observation given that the MBA Purchase Index is up about 26% in January...

Agency Mortgage REIT giant American Capital Agency reported earnings yesterday. They have been aggressively moving down-coupon in TBAs, which is one of the big reasons why higher coupon TBAs have underperformed so much on the way down. This means a borrower is going to be somewhat disappointed in the points they receive for going up in rate.