January 2019 (www.wigowir.com) What is going on with Interest Rates

January 1st, 2019

Instructions on how to read this blog: Below is the news for the month when it happened and the market’s reaction.  For a full view of the month start at the bottom and work your way up. If want to know what just happened start at the top. All Times are Eastern Standard Time.  When the price of Mortgage Backed Securities (MBS) goes down rates go up, and when the price goes up rates come down. Remember in the bond market Bad News is Usually Good News and Good News is Usually Bad news. 

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Tuesday - January 15th

 8:09 AM 10-yr yield near unchanged at 2.69%.

Monday- January 14th


Stocks fell in today's session but couldn't spark a rally in the Bond markets as prices closed near unchanged. There were no economic reports released today. The Fannie Mae 30-yr 4% coupon closed at 101.94, -3bp. Stocks fell after China reported a year-over-year decline in both imports and exports in December, which stoked global growth fears along with earnings worries. The Dow fell by 86.11 points to 23,909.84, the S&P 500 lost 13.65 points to 2,582.61 while the NASDAQ was lower by 65.56 points to end the session at 6,905.91. WTI oil settled at $50.51/barrel, -$0.85. 10-yr yield 2.70%. The wholesale inflation reading Producer Price Index and the Empire Manufacturing Index will be released tomorrow morning.

Late Morning Review:

U.S. stocks are lower to begin the week after reports that Chinese exports slowed to their lowest pace in two years, solidifying slowing global growth. Questions regarding tomorrow's Brexit vote are also weighing on Stocks around the globe. Throw in the lingering government shutdown here in the U.S. and there are a few hurdles for Stocks to begin the week. Earnings season kicks off slowly this week with Citigroup's numbers missing expectations. JPMorgan and Bank of America will report later in the week but the bulk of the numbers takes place next week.

There are no economic reports due for release today. As far as economic data for the week, Retail Sales, Housing Starts and Building Permits have been knocked off the calendar due to the government shutdown as it enters its 24th day, its longest on record. More than 800,000 federal workers have been impacted by the shutdown with many of those workers deemed essential and are working without pay.

Gas prices at the pumps continue to run on the low end of the scale for the past few months due in part to oversupply and less demand during the winter months. The national average price for a regular gallon of gasoline is at $2.25, up a meager penny this week after declining for 12 weeks in a row, reports motor club AAA. “As the global crude market continues to be oversupplied, oil prices are dropping, continuing last week’s trend,” said Jeanette Casselano, AAA spokesperson. “This is good news for motorists filling up at the pump.”

 8:17 AM 10-yr yield 2.67% from Friday's close of 2.70%.


Friday - January 11th


Next Week

The Fed is very much "data-dependent", meaning they will watch the incoming economic reports to help them determine their next move with interest rates. And this week brings a full slate of economic reports including numbers on housing, manufacturing, consumer spending and overall sentiment.
It would take a surprising positive change in economic data to cause the Fed to hike rates before June.

Some economic data, like Retail Sales and Housing Starts, may not be released if the government shutdown continues.

The uncertainty behind the ongoing U.S. government shutdown and U.S./China trade dispute continues to provide support for Bonds and home loan rates. Should these events come to a positive resolution, Bonds may drop, and rates may rise. The opposite is true.

Reports to watch:

  • The wholesale inflation reading Producer Price Index will be released on Tuesday.
  • Manufacturing data from Tuesday's Empire State Index will be followed by the Philadelphia Fed Index on Thursday.
  • Retail Sales may be released on Wednesday, given the government shutdown situation.
  • Housing data from the NAHB Housing Market Index will be delivered on Wednesday and possibly Housing Starts and Building Permits on Thursday.
  • Weekly Initial Jobless Claims will be announced on Thursday.
  • Friday brings Consumer Sentiment

Week in Review:

We are good where we stand right now"... Fed President James Bullard - 1/10/19

Stocks continued to react positively to Fed Chair Powell's Jan 4th speech, where he essentially said, "we have your back"...meaning that the Fed will be "flexible" and may not raise rates at all in 2019.

There is an old saying in the financial markets - "don't fight the Fed." This means that if the Fed is saying or doing something (hinting no rate hikes) that helps Stocks, that theme will continue until the story changes.

Typically, when stocks move higher, so do long-term rates, like home loans. And this past week, we saw the recent nice trend of lower rates get disrupted.

Even though the recent trend of lower rates, the lowest since the Spring, is very much at risk - we should not expect long-term rates to move too high. Why? Inflation is not a threat.

Fed President Bullard, quoted above, also said he expects inflation to be near current levels for the next FIVE years. If that is the case, home loan rates will remain relatively attractive for longer than most expect.      


Mortgage Bonds were able to improve today due to low inflation data from the CPI along with Stocks pausing after their recent rally. The Fannie Mae 30-yr 4% coupon closed at 101.97, +19bp. Stocks paused after their recent rally. The Dow, S&P and NASDAQ all closed near unchanged at 23,995.95, 2,596.26 and 6.971.47, respectively. WTI oil closed at $51.59/barrel, -$1.00. 10yr yield 2.69%. Next week's economic calendar is on the heavy side. Have a great weekend!

Late Morning Review:

Consumer inflation remained subdued in December due in part to declining energy prices, reports the Bureau of Labor Statistics. The Consumer Price Index (CPI) fell 0.1%, the first decline in nine months and inline with expectations. The Core CPI, which strips out volatile food and energy, was also inline rising 0.2%. On an annual basis, the headline CPI fell to 1.9% from 2.2% while the Core rate was unchanged at 2.2%. The Federal Reserve will take the tame inflation data into consideration when setting monetary policy later this month.

After their recent decline in December, Stocks have surged back so far in the new year after Fed Chair Powell assured the markets that the Fed would be patient on interest rate hikes. The closely watched S&P 500 Stock Index, is up 10% from the low seen on the Christmas Eve meltdown. U.S. Stocks are lower this morning as the week draws to a close. The S&P 500 is a stock market index based on the market capitalizations of 500 large companies listed on the NYSE or NASDAQ.


Thursday - January 10  

Late Morning Review:

Freddie Mac reports that mortgage rates fell to their lowest levels in nine months after the big rise seen in 2018 up until mid-November. The 30-year fixed-rate mortgage fell six basis points to 4.45% with an average 0.50 in points and fees. Freddie Mac said, "In response (to low rates), mortgage applications jumped more than 20%. Lower mortgage rates combined with continued income growth and lower energy prices are all positive indicators for consumers that should lead to a firming of home sales."

Refinancing mortgages is becoming more attractive to Americans now that rates have crept lower in the past two months. At the end of December, a report from Black Knight stated that 2.4 million borrowers could qualify to reduce their interest rates by 0.75% by refinancing. However, while this represents a 29% rise from what was a 10-year low, the total number of refinance candidates is down 50% from last year.

A recent survey by ATTOM Data Solutions revealed that home prices are rising faster than wages in 80% of the markets covered. The result is that renting is becoming more affordable option for Americans. “With rental affordability outpacing home affordability in the majority of U.S. housing markets, and home prices rising faster than rental rates, the American dream of owning a home, may be just that ... a dream, “said Jennifer von Pohlmann, director of content and PR at ATTOM Data Solutions.

Wednesday - January 9


Stocks rose for a fourth straight session on the Powell bid and on trade optimism between the U.S. and China. Mortgage Bond prices ended near unchanged while yields were also near unchanged. The Fannie Mae 30-yr 4% coupon closed at 101.94, near unchanged. The Dow gained 91.67 points to 23,879.12, the S&P rose 10.55 points to 2,584.96 while the tech heavy NASDAQ closed at 6,957.07, up 60 points. Stocks closed off session highs after talks to reopen the gov't fell apart again today. The Fed minutes signaled that the Fed can be patient about future rate hikes, but that was already spelled out by Powell last Friday. WTI oil gushed higher by $2.58 to $52.36/barrel on Saudi output cuts and U.S.-China trade talks. Economic data is limited to Weekly Initial Jobless Claims tomorrow. The Treasury will sell $16B 30-yr Bonds and comes after today's strong demand for the 10-yr offering.

Late Morning Review:

Mortgage rates continued to edge lower in the latest week to levels not seen since the spring of last year. The Mortgage Bankers Association reports that the 30-year fixed-rate mortgage fell 10 basis points to 4.74% with 0.47 in points. "This drop in rates spurred a flurry of refinance activity - particularly for borrowers with larger loans - and pushed the average loan size on refinance applications to the highest in the survey (at $339,800)," said Joel Kan, MBA's Associate Vice President.

Home price gains are beginning to ease back to more normal levels after the big increases seen since the housing market recovery began. Black Knight reports that home price growth has slowed in 33 states and in 71 of the 100 largest markets. Black Knight said the West saw the most deceleration with California the hardest hit. Gains of +7% or more year-over-year couldn't last forever.

The Fed minutes from the December meeting will be released today at 2:00 p.m. ET. The minutes are sort of in the rear view mirror after Fed Chair Powell spoke last Friday and sparked a rally in the U.S. stock markets with his dovish remarks on monetary policy. Fed Fund Futures show a zero percent chance of a rate hike at least through the first half of this year and maybe none at all in 2019, given the current low inflation environment. A dovish tone means that Fed members favor looser, more accommodating interest rate policies. A hawkish policy is the opposite.

8:19 AM 10-yr yield rises to 2.74%.

Tuesday - January 8  

Late Morning Review:

The NFIB Small Business Optimism Index was essentially unchanged in December just below record highs at 104.4. The NFIB said that unfilled jobs and the lack of skilled qualified applicants continue to be the primary driver of the frothy index, with job openings setting a record high and job creation plans strengthening. “Optimism among small business owners continues to push record highs, but they need workers to generate more sales, provide services, and complete projects," said NFIB President and CEO Juanita D. Duggan.

The JOLTS report (Job Openings and Labor Turnover Survey) showed that there were 6.9 million job openings at the end of November, just below record high of 7.1 million set back in August, strengthening the data from the NFIB. Job openings increased in transportation, warehousing, and utilities while declines were seen in other services and construction. The December Jobs Report showed a whopping 312,000 new workers were hired as the labor market continues to move to greener pastures.

Monday - January 7  


Higher Stock prices weighed on the Bond markets today as Mortgage Bond prices opened in positive territory only to slowly lose the gains as the session dragged on. The Fannie Mae 30-yr 4% coupon closed at 101.97, -9bp. The Dow gained 98.19 points to 23,531.35, the S&P 500 rose 17.75 points to 2,549.69 while the NASDAQ closed higher by 84.61 points to end at 6,823.47. WTI oil closed at $48.52, +$0.56. 10-yr yield rose to 2.69% from Friday's early morning low of 2.54%. There are no major economic reports due for release tomorrow. The Treasury will sell $38B 3-yr Notes, results at 1:00 p.m. E

Late Morning Review

Online real estate company Zillow reports that the total value of the U.S. housing market rose $1.9 trillion in 2018 to $33.3 trillion, a 6.2% increase. That is up $10.9 billion since the market bottom in 2012, a third of the gains seen in California. New York comes in number one with the highest amount of total value of all homes at $3 trillion, accounting for 9.1% of the country's total hosing value. To put it in perspective, the $33.3 trillion in total U.S. housing value is equivalent to the combined Gross Domestic Products of the U.S. ($19.4 trillion), China ($12.2 trillion) and Canada ($1.7 trillion).

Fannie Mae reports that housing confidence deteriorated in December as more Americans believe it's a bad time to buy a home. The Fannie Mae Home Purchase Sentiment Index fell 2.7 points in December from November to 83.5. The index has resumed its downward trend after a slight increase in November. The report read that the net share of Americans who say it is a good time to buy a home fell 12 percentage points from last month to 11%. This component is down 13 percentage points from the same time last year. "Looking ahead, consumers expect the pace of home price growth to slow over the course of 2019, which may temper growing concern over housing affordability," said Doug Duncan, senior vice president and chief economist at Fannie Mae.

Gas prices at the pumps continue to edge lower due in part to oversupply and less demand during the winter months. The national average price for a regular gallon of gasoline is at $2.24 and has declined for 12 weeks in a row, reports motor club AAA. “As the global crude market continues to be oversupplied, oil prices are dropping, continuing last week’s trend,” said Jeanette Casselano, AAA spokesperson. “This is good news for motorists filling up at the pump.”

Friday - January 4

Next Week: 

It will be back-to-business this week for the first full workweek of 2019 after the two-previous holiday shortened weeks.
The closely watched Consumer Price Index for December will be released with the Fed keeping close eyes on the inflation reading ahead of the January 30th Fed Meeting. Speaking of the Fed - as of right now, financial markets are pricing in a 91% probability the Fed Funds Rate will be unchanged in 2019 - meaning no more rate hikes this year.

The U.S. government may be enduring a partial shutdown, but that doesn't stop them from borrowing money to run our country and this coming week the U.S. Treasury will sell $78B worth of Bonds in that effort. With rates and bond yields at the lowest levels in a year, it will be interesting to see the investor appetite at these Treasury auctions. If investors demand more yield at the auctions, expect rates, including home loan rates, to tick higher.

Reports to watch:

  • The ISM Service Index will be released on Monday.
  • Weekly Initial Jobless Claims will be announced on Thursday.
  • On Friday, the Consumer Price Index will be released.

I-Phone maker, Apple, was a downer this week as the company announced a surprise weak sales and earnings forecast for the first quarter of 2019.

Week in Review: 

Stocks and interest rates fell on the bad news, concerned that Apple, the first big tech firm to report weak growth in 2019, is the "canary in the coalmine" and that more companies will report weaker sales and earnings.

Regardless of Apple's current woes, the U.S. economy is still humming along as was evident in Friday's Jobs Report which showed an "eye-popping" 312,000 jobs created in December.

Adding to the good news in the Jobs Report was a 3.2% hike in wage gains year over year - the highest level in a decade.

Remember, jobs buy houses, not rates, so the positive jobs numbers and wage growth are great for housing.

But while we are on the subject of rates, the "bad Apple" news helped rates improve again this week to the lowest levels in nearly a year.

Rates have been steadily improving since early November. What happened in early November? Congress became divided. Bonds and home loan rates love uncertainty, chaos, stalemates and bad news - Congress can provide plenty of it from time to time.       

Friday - January 4


A big reversal higher for Stocks from yesterday's steep losses pushed Bond prices lower, yields higher in today's session. The strong jobs report, positive trade headlines and dovish remarks from Fed Chair Powell pushed the Dow up nearly 850 points before closing just off the highs. The Fannie Mae 30-yr 4% coupon closed at 102.06, -38bp. The Dow gained 746.16 points to 23,433.16, the S&P 500 rose 84.05 points to 2,531.94 while the NASDAQ closed at 6,738.85 up 275.35 points. WTI oil settled at $47.96/barrel, +$0.87. 10-yr yield rose to 2.66% from the early morning low of 2.54%. Next week, the FOMC minutes from the December meeting will be released. CPI will be released. Have a great weekend!



Late Morning Review:

The Labor Department reported on Friday that 312,000 new workers were added in December, well above the 180,000 expected, and brings the three-month average to a frothy 254,000K! The 312,000 was the largest increase since February 2018's 324,000 while October and November were revised higher by a total of 58,000. Payroll growth totaled 2.6 million in 2018, the highest since 2015 and above the 2.2 million in 2017.

On the wage front, average hourly earnings rose 0.4%, above the 0.3% expected, while year-over-year growth rose 3.2%, tied with October for the best annual increase since April 2009. The Labor Force Participation Rate ticked up to 63.1% as more Americans entered the workforce, up from 62.7% from a year ago. The U6 number, or total unemployed, remained at 7.6%, down from 8.1% a year ago. The Unemployment Rate edged higher to 3.9% from 3.7%. Overall, a very strong Jobs Report.


8:44 AM 10-yr yield rises to 2.62% after the strong jobs data.

8:31 AM December Non-Farm Payrolls 312K vs 180K expected.


Thursday - January 3  


U.S. Stocks plunged today due to the Apple news, weak manufacturing data and continued fears of slowing global growth. The environment lifted Bond prices and drove yields lower. The Fannie Mae 30-yr 4% coupon closed at 102.44, +38bp. The Dow fell by 660.02 points to 22,686.22, the S&P 500 lost 62.14 points to 2,447.89 while the NASDAQ dropped 202.43 points to end at 6,463.50. WTI oil was last seen at $47.11/barrel, +$0.57 in after hours trading. 10-yr yield 2.55%. The December Jobs Report will be released at 8:30 a.m. ET tomorrow morning where it is expected that U.S. employers added 180K workers. Be tuned in just before 8:30 to get the headlines and the market reaction.

Late Morning Review:

Mortgage rates continued to decline this week due in part to U.S. Stocks melting down, which pushed Bond prices higher and rates lower. Freddie Mac reports that the 30-year fixed-rate mortgage fell four basis points to 4.51% with an average 0.50 in points and fees. Freddie Mac said, "Low mortgage rates combined with decelerating home price growth should get prospective homebuyers excited to buy."

National manufacturing activity continued to expand in December while the overall economy grew for the 116th consecutive month, reports the Institute for Supply Management (ISM). In its latest reading, the ISM National Manufacturing Index fell to 54.1 in December, a decline of 5.2 points from the November reading of 59.3 and below the 57.8 expected. Two key components within the report, new orders and employment, both declined during the month. Those executives surveyed saw continued business strength, but at much lower levels.

Shares of popular iPhone maker Apple are plunging this morning after weak sales in a slowing China economy was announced. The current trade war between the U.S. and China are also impacted revenues at Apple. Apple expected revenues for October, November and December of 2018 to come in $84 billion, down from the previous projection of $89 billion. In addition, upgrades to new iPhones were not as strong as expected. Shares of Apple were trading around $144, down from its high of $234 back in early October.

Thu, Jan 03 11:07 AM 10-yr yield slides lower to 2.57%.

Thu, Jan 03 10:18 AM Freddie Mac reports that the 30-yr fixed rate mortgage fell 4bp this week to 4.51%, down from 4.94% in the first half of November. The rate carries an average point of 0.50.

Wednesday - January 2  

Wed, Jan 02 4:30 PM

Mortgage Bonds struggled to close with meager gains and closed wider on spread vs Treasuries in the wake of gyrating equity markets. 


Home loan rates start 2019 at the best levels since spring. With two headline risk events coming tomorrow and Friday, by way of the ADP and Jobs Reports, 


Not much movement for Mortgage Bonds today despite seesaw trading in the equity markets. There were no economic reports released today. The Fannie Mae 30-yr 4% coupon closed at 102.03, +6bp while Treasury prices saw bigger gains. The Dow closed at 23,346.24 up 18.78 points, the S&P rose 3.18 points to 2,510.03 while the NASDAQ was up 30.66 points to end at 6,665.93. WTI oil settled at $46.54/barrel, +$1.15 on news that Saudi Arabian exports are seen declining. 10-yr yield 2.64%. The ADP Private Payrolls Report will be released tomorrow along with Weekly Initial Jobless Claims and the ISM Manufacturing Index.

10 year 190102

Late Morning Review:

CoreLogic reports that home prices, including distressed sales, rose 5.1% from November 2017 to November 2018, just below the 5.4% gain seen in October. That is down from the 7% gain seen year-over-year in March of this year. On a month-over-month basis, prices rose 0.4% from to October 2018 to November. Looking ahead, CoreLogic sees a 4.8% increase from November 2018 to November 2019. “The rise in mortgage rates has dampened buyer demand and slowed home-price growth. Interest rates for new 30-year fixed-rate loans averaged 4.9 percent during December, the highest monthly average since February 2011,” said Chief Economist Frank Nothaft.

U.S. stocks begin the first day of trading lower in sympathy with declining equity markets after headlines read of weak economic data out of Europe and Asia. China manufacturing activity contracted for the first time in 19 months as the trade issues with the U.S. begin to take their toll. Last year was rough for Stocks as the closely watched S&P fell 6.2%, its worst loss in a decade and came after the 20% gain in 2017.

The first economic report of 2019 was released this morning showing that manufacturing activity slowed in the U.S. in December. The IHS Markit PMI/Manufacturing Index fell to 53.8 in December, down two points from November and a 15-month low for the index. Within the report it showed that job creation slowed to an 18-month low. In addition, the rate of inflation fell to an 11-month low in December while business confidence is at its lowest level since October 2016.

Wed, Jan 02 8:25 AM 10-yr yield at 2.65%, lowest since February, 2018.

This Week:

The first week of 2019 is also holiday shortened and may also be extremely volatile as the financial markets will react to the December Jobs Report on Friday. 

There is no expected delay on releasing the Jobs Report should the government still be partially closed. 
There will also be several manufacturing reports released during the week, but everything takes a back seat to the Friday Jobs release. 

Why? The Fed has stated they are "data-dependent" when it comes to future rate hikes, meaning they are looking at important readings like the Jobs Report in determining the future path of short-term interest rates. 

The recent selloff in Stocks has been largely caused by fears the Fed will be too aggressive hiking interest rates in 2019. The Jobs Report may give early clues on what to expect with rate hikes in 2019 and it could be a market moving event this week. 

Reports to watch:

  • The Chicago PMI will be released on Wednesday followed by the ISM National Manufacturing Index on Thursday.
  • ADP Private Payrolls will be released Thursday due to the holiday shortened week.
  • The government's Jobs Report for December will be released Friday and includes Non-Farm payrolls, the Unemployment Rate and Hourly Earnings.

Last week:

The financial markets had plenty to cheer about this week. On Wednesday, Stocks rallied a stunning 1,000+ points, enjoying their best one-day gain in history and then rallied over 800 points higher intraday on Thursday, erasing a huge midday loss. All in all, a great and welcome week in what was otherwise a miserable December for Stocks. 

Typically, higher stock prices mean higher home loan rates but that wasn't the case this holiday week. Yes, Bonds moved slightly lower and home loan rates slightly higher in response to the swift Stock rally, but rates ended the week and head into 2019 near the best levels since spring. 

The high volatility in the markets is likely to continue well into 2019 as Stocks and Bonds continue to bounce around in response to the U.S. government shutdown, U.S./China tariffs, China slowdown, European issues and uncertainty around the Fed. 

Is this good news for home loan rates and housing? Inflation is in line with the Fed's expectations and bond yields in other parts of the world remain low due to slower economic growth which means that home loan rates should remain relatively low for the foreseeable future. 



John Marbury
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