February 2018

February 2018

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 Good News and Good News is Bad news.

Wednesday February 28


Stocks tanked today giving a modest boost to Mortgage Bond prices as the S&P 500 had its biggest monthly decline since January 2016. Mortgage Bonds were also buoyed by weak Pending Sales for January and a slight downward look for Q4 2017 GDP. The Fannie Mae 30-yr 4% coupon closed at 102.44, +19bp. The Dow fell by 380.83 points to 25,029.20, the S&P 500 declined by 30.45 points to 2,713.83 while the NASDAQ was down 57.34 points to end at 7,273.00. WTI oil closed at $61.64/barrel, -$1.37. 10-yr yield 2.86%. Tomorrow's economic data includes Personal Income & Spending, Core PCE (inflation gauge), Weekly Initial Jobless Claims and the ISM Index. Fed Chairman Powell be be in front of the Senate tomorrow morning but his opening remarks will resemble those offered to the House yesterday.

Late Morning Review:

After rising since the end of January, mortgage rates were unchanged in the latest week, reports the Mortgage Bankers Association. The 30-year fixed conforming mortgage rate ($453,100 or less) remained at 4.64% last week, still at four-year highs though historically attractive. The 30-year jumbo rate (greater than $453,100) fell five basis points to 4.57%, while the 30-year FHA rate rose 10 basis points to 4.68%, its highest level since April 2011. Those rates do carry at least a 0.5 point added on top.

Economic growth eased slightly in the final quarter of 2017, below the third quarter reading. The Bureau of Economic Analysis reports that the second reading of Gross Domestic Product in the fourth quarter edged lower to 2.5% from the initial reading of 2.6% due in part to lower private inventory investment. The 2.5% is down from 3.2% in the third quarter. Within the report it showed that consumer spending, which accounts for more than two-thirds of U.S. economic activity, remained at 3.8%, the quickest pace since the fourth quarter of 2014.

According to Freddie Mac’s Quarterly Refinance Statistics, in the fourth quarter of 2017, “Cash-out” borrowers, those that increased their loan balance by at least 5%, represented 63% of all refinance loans. This was up from 44% a year earlier, but still lower than the 89% registered in the third quarter of 2006. In the fourth quarter, when adjusted for in inflation dollars in 2017, an estimated $14.8 billion in net home equity was cashed out during the refinance of conventional prime-credit home mortgages, down from $19.0 billion a year earlier and substantially less than the peak cash-out refinance volume of $102.3 billion during the second quarter of 2006

Tuesday - February 27  


Mortgage Bonds started the day flat to modestly higher and traded near unchanged up until Fed Chairman Powell took the stand in front of the House Financial Service Committee at 10:00 a.m. ET. Mr. Powell said the Fed will continue to strike a balance between avoiding an overheated economy and reaching 2% inflation. The "overheated" word really spooked both Stock and Bond prices and has not been heard from the Fed in the past 10-years. Soon after "overheated", both the Stock and Bond markets fell and yields rose. The Fed Funds Futures market is all but certain that three rate hikes will take place in 2018, but the implied likelihood of a fourth hike in December increased to 33.1% from 24.4% yesterday. The Fannie Mae 30-yr 4% coupon closed at 102.25, -16bp having traded as high as 102.47 and as low as 101.91. Stocks fell after Powell's comments. The Dow fell by 299.24 points, the S&P lost 35.32 points to 7,330.35, while the NASDAQ finished at 7,330.35, down 91.11 points. WTI oil settled $63.01, -$0.90. 10-yr yield 2.89%. Tomorrow's data includes GDP, Chicago PMI and Pending Home Sales.


Late Morning Review:

Home prices continued to rise in December due in part to high demand and a shortage in homes for sale on the market. The S&P Case-Shiller 20-City Home Price Index rose 6.3% from December 2016 to December 2017, just below the 6.4% recorded in November. From November to December, prices were up 0.6 percent. David M. Blitzer, managing director and chairman of the index said, "Within the last few months, there are beginning to be some signs that gains in housing may be leveling off. Sales of Existing Homes fell in December and January. Pending Home Sales of existing homes are roughly flat over the last several months. New home sales appear to be following the same trend as existing home sales."

Americans were extremely confident over present day economic conditions led by gains in the labor force. The Conference Board reported that its Consumer Confidence Index rose to 130.6 this month, above the 126.5 executed and the best reading since November 2000. The report went on to read that despite the recent stock market volatility, consumers expressed greater optimism about short-term prospects for business and labor market conditions, as well as their financial prospects. In addition, consumers remain quite confident that the economy will continue expanding at a strong pace in the months ahead.

Newly appointed Fed Chairman Jerome Powell gave his semi-annual testimony on the state of the U.S. economy in front of the House Financial Services Committee today. Mr. Powell said the U.S. economy grew at a solid pace over the second half of 2017 and into this year while wages have continued to grow moderately, with a modest acceleration in some measures. Mr. Powell went on to say that the recent Stock market volatility will not stop the Fed from gradually raising the short-term Fed Funds Rate in 2018.


Monday - February 26  


Not a lot of action in the Mortgage Bond markets as prices were capped by surging Stocks. January New Home Sales fell from December to the lowest level in five months. The Fannie Mae 30-yr 4% coupon closed near unchanged at 102.44. Stocks blasted off as fears of rising interest rates eased and Stocks today were fueled by higher tech and industrial shares. The Dow soared by 399.28 points to 25,709.27, the S&P was up 32.30 points to 2,779.60, while the NASDAQ jumped 84.07 points to end at 7,421.46. WTI oil closed at $63.91/barrel, +$0.36. 10-yr yield 2.86%. Data out tomorrow includes Durable orders, S&P Case-Shiller 20-city Home Price Index and Consumer Confidence.


Rising mortgage rates coupled with a lean supply of homes for sale on the lower-end of the market pushed sales of single-family homes lower in January. The Commerce Department reported that New Home Sales fell 7.8% in January from December to an annual rate of 593,000 units versus the 645,000 expected led by a 33% plunge in the Northeast and a near 15% decline in the South. Gains were seen in the Midwest and West. From January 2017 to January 2018, sales were down 1%. The median sales price of new houses sold in January 2018 was $323,000. The average sales price was $382,700.

Late Morning Review

Newly appointed Fed Chair Jerome Powell will be in front of the House tomorrow and the Senate on Wednesday in his semi-annual testimony on the state of the U.S. economy in his first major piece since taking over at the Fed. The headlines could definitely impact the markets. The Federal Reserve will need to slow the economy down a bit by raising the short-term Fed Funds Rate at least two more times in 2018. The Fed Funds Rate is the rate in which banks lend funds held at the Federal Reserve on an overnight basis.

Since rising by +6.1% in 1990, inflation (as measured by the Consumer Price Index) has averaged just +2.3% per year and has been as high as +4% in only one year (2007) over the last 27 years, (1991-2017). The Consumer Price Index is a measure of inflation compiled by the Bureau of Labor Statistics. The Federal Reserves favorite inflation gauge, the Core Personal Consumption Expenditure (PCE), is running at 1.5%, below the Fed's target range of 2%.

Friday - February 23  

There were no economic reports due for release today. Looking out to next week, economic data is plentiful with readings on consumer attitudes, housing, manufacturing, Gross Domestic Product and the closely watched inflation reading Core Personal Consumption Expenditure. With all the inflation talk in the past three weeks, it will be interesting to see if the Fed's favorite inflation gauge, the annualized Core PCE rose in January. It is currently at 1.5%, still well below the Fed's target of 2%.

Newly appointed Fed Chair Jerome Powell will be delivering his first semi-annual testimony on the state of the U.S. economy in front of Congress next week, which will garner some attention from the markets. This morning at 11:00 a.m. ET the Fed will release its Monetary Policy Report a sort of outline for Mr. Powell's opening comments next week. Mr. POwell is the 16th Federal Reserve Chairman.

The national average price for a regular gallon of gasoline edged lower to $2.52 this week from $2.54 seen a month ago. Gas prices have been steadily dropping from the year-to-date high of $2.61 in February 5. “The question isn’t how low will they go, but how long will we see prices decline,” said Jeanette Casselano of AAA. “A handful of major refineries are undergoing maintenance. If production slows at a high rate and/or if crude oil prices jump, these events could push pump prices back up in late February or March.” 

-Tuesday February 20th


 Not a lot of action in the MBS market today as prices traded in a tight range for most of the session. There were no economic reports released today. Higher global yields, a possible more hawkish new deputy at the ECB and added supply weighed on Bond prices today. The Fannie Mae 30-yr 4% coupon closed at 102.38, -9bp. Stocks declined after six straight days of gains as investors took some profits and as lower shares of Walmart pushed Stocks lower after the retailer reported slowing online sales. The Dow lost 254.63 points to end at 24,964.75, the S&P fell by 15.96 points to 2,716.26 while the NASDAQ was down 5.15 points to end at 7,234.30. WTI oil closed at $61.90/barrel, +$0.22. 10-yr yield 2.89%. Existing Home Sales will be released tomorrow morning. The minutes from the January FOMC meeting will be released at 2:00 p.m. ET but we don't see much of an impact. The Treasury will sell $35B 5-yr Notes, results at 1:00 p.m. ET and comes after today's so-so demand from the 2-yr offering.


Late Morning Review:

There were 1.48 million existing homes for sale in the United States as of December 31, 2017, a drop of 460,000 in the last six months of last year. The 1.48 million "for sales" is the lowest level reported in history for a statistic that has been tracked since 1999. The average supply during the fourth quarter was 3.5 months - down from 4.2 months in the fourth quarter of last year. where a 6-month supply is seen as healthy. “While tight supply is expected to keep home prices on an upward trajectory in most metro areas in 2018, both the uptick in mortgage rates and the impact of the new tax law on some high-cost markets could cause price growth to moderate nationally," said Lawrence Yun, National Association of REALTORS® Chief Economist.

Serious mortgage delinquencies dropped in the final quarter of 2017 to the lowest level since the end of the Great Recession, reports credit rating agency TransUnion. The serious mortgage delinquency rate declined to 1.86% in the fourth quarter of 2017 from 2.28% in the fourth quarter of 2016. Mortgage delinquency rates have now dropped on an annual basis every quarter since the recession. This is contributed to recession era defaults working their way out of the system while recent originations underwritten to a very high standard.

U.S. Stocks are lower to begin the holiday shortened week weighed down by shares of Walmart after the giant retailer reported a lower-than-expected quarterly profit. In addition, the notion of higher interest rates that leads to higher borrowing costs are also weighing on Stocks. The S&P 500 Index tallied up its best weekly increase in five years last week easing fears of a deeper correction after the steep losses took place in the beginning of February.

First Thing in the Morning

The 10-yr yield rises to 2.90% from Friday's close of 2.87% and continues to be drawn towards the 3% level.  The roller coaster trading pattern continues for Mortgage Backed Securities as the holiday shortened week begins. MBS open lower after Friday's gains.  The minutes from the January Fed meeting will be released tomorrow at 2:00 p.m. ET.  Fed Fund Futures show an 83% chance of a hike to the short term Fed Funds Rate at next month's FOMC meeting.This week's economic calendar is virtually non-existent with just Existing Home Sales tomorrow and Weekly Initial Claims on Thursday


Friday February 16th


MBS end the week with gains today building on yesterday's positive action and despite strong housing and Consumer Sentiment data. The Fannie Mae 30-yr 4% coupon rose by 25bp to end the week at 102.47, just 6bp below last Friday's close. Stocks had a seesaw session with gains and losses before closing mixed. The Dow gained a mere 19.01 points to 25,219.38, the S&P 500 closed near unchanged at 2,732.22 up 1.02 points while the NASDAQ fell by 16.96 points to end the week at 7,239.46. Stocks fell from their highs after 13 Russian nationals were indicted but Deputy Attorney General Rosenstein said, "There is no allegation that the charged conduct altered the outcome of the 2016 election." WTI oil closed at $61.68/barrel, +$0.34. 10-yr yield 2.87%. All U.S. markets are closed on Monday in observance of Presidents Day. Have a great long weekend!  I will be around if you need an estimate or to get pre-qualified.

This weeks newsletter:

chart 180216


Late Morning Review:

The Commerce Department reported on Friday that Housing Starts jumped 9.7% from December to an annual rate of 1.326 million units, above the 1.240 million expected. That was the highest level since October 2016 and up 7.3% from January 2017. Multi-dwelling starts, five or more units, surged 19.7% from December. Single-family starts, which account for the largest share of the market, rose 3.7% from December, up 7.6% from January 2017. Housing Starts rose in the Northeast, South and West but declined in the Midwest.

Fannie Mae reported on Thursday that it has increased this year's 30-year fixed mortgage rate forecast by 30 basis points to an average of 4.40% as a result of the unexpected jump in long-term interest rates at the beginning of the year. However, Fannie Mae doesn't expect mortgage rates to play much of a role in total home sales, especially with anticipated stronger disposable household income growth. The ongoing inventory shortages should continue to constrain sales despite positive home buying conditions.

Consumer Sentiment surged in early February as tax cuts outweighed the drop in Stock prices early in the month. The Consumer Sentiment Index rose to 99.9 from the January reading of 95.7 and above the 95.5 expected. It was the second highest level since 2004. Consumers were upbeat on the economy, rising incomes and rising employment figures. The largest proportion of households reported an improved financial situation since 2000, and expected larger income gains during the year ahead.



First Thing in the morning:

January Housing Starts up nearly 10% from December to an annualized rate of 1.326 million units vs the 1.240 million expected.  January Building Permits +7.5% from December to an annualized rate of 1.326 million units vs the 1.3 million expected.  10-yr yield 2.87% from yesterday's close of 2.89%.



Thursday February 15th

Late Morning Review:

Home builder sentiment remained high in February as evidenced by today's lofty reading. The NAHB Housing Market Index came in at 72, matching the January number. Any reading over 50 is viewed as "good." The recent tax cuts are making builders feel better, despite the recent increase in mortgage rates. Two key components within the report, sales expectations and buyer traffic, also remained high. The survey asks respondents to rate market conditions for the sale of new homes at the present time and in the next six months as well as the traffic of prospective buyers of new homes.

Manufacturing activity in the New York State region declined in February though it continues to expand. The February Empire State Manufacturing Survey declined five points to 13.1, below the 19 expected. The report revealed that the new orders index and the shipments index were little changed, and indicated ongoing growth in orders and shipments. Labor market conditions pointed to a modest increase in employment and hours worked. Looking ahead, firms continued to be optimistic about the six-month outlook.

Total household debt climbed in the fourth quarter of 2017 reaching new highs and marking the fifth consecutive year of positive annual growth. Household debt rose by $193 billion to $13.15 trillion in the last three months of 2017. There were increases in mortgage, student, auto, and credit card debt (increasing by 1.6%, 1.5%, 0.7% and 3.2% respectively), but another modest decline in home equity line of credit (HELOC) balances (decreasing by 0.9%). 


First thing in the morning

The somewhat push-pull economic data below leaves Mortgage Backed Securitiess near unchanged.

The Producer Price Index (wholesale inflation), rose 0.4% in January, inline.  
Core PPI 0.4% vs 0.2% expected. Weekly Initial Jobless Claims +7K to 230K, 227K expected.  February Empire Manufacturing 13.1 vs 19 expected. February Philly Fed 25.8 vs the 22 expected.  10-yr yield rises to 2.92%.

Wednesday February 14th 


Mortgage Bond prices began the day slightly higher but fell hard during the session after the hotter CPI data. The weak Retail Sales numbers were shrugged off and took a backseat. The Fannie Mae 30-yr 4% coupon plunged by 44bp to end at 102.12 having lost 100+bp since last Tuesday until today's low of 102.0 and a whopping 272bp since the 2018 high of 104.72 hit on January 5. Stocks initially fell on the CPI news, but rallied as the trading day unfolded led by surging shares of Facebook, Amazon and Apple. The Dow soared by 253.04 points to 24,893.49, S&P gained 35.69 points to 2,698.63 while the NASDAQ jumped 130.10 points to end the session at 7,43.61. WTI oil closed at $60.60/barrel, +$1.41. 10-yr yield climbed to 2.91%. A spate of economic data will be released tomorrow which includes Weekly Initial Jobless Claims, Producer Price Index, Empire Manufacturing, Philly Fed and NAHB Housing Market Index.

 1:30 PM MBS fall to session lows. Alert To Lock!

Inflation has reared its head this morning. Hotter-than-expected consumer prices pushed both Stock and Bond prices lower this morning though Bonds are off their worst levels, while Stocks have turned positive. The Labor Department reported that the Consumer Price Index (CPI) in January rose 0.5%, the largest increase since September due to rising energy costs.

On an annual basis, CPI was unchanged at 2.1%. The more closely watched Core CPI, which strips out volatile food and energy, rose 0.3%, the biggest jump in a year fueled by rising rent costs. The rise in inflation could push the Fed to raise the short-term Fed Funds Rate more quickly than anticipated. The headlines pushed Bond prices lower while yields pressed higher.

Consumers closed their wallets in January after spending big during the holiday shopping season. Retail Sales fell by 0.3% last month versus the 0.2% gain expected, the biggest decline since February of 2017. However, many analysts were not overly concerned with the decline. With solid job growth and consumer confidence at frothy levels, consumer spending should pick up in the coming months. 


Inflation 1801


First Thing in the Morning:

January CPI hotter than expected at 0.5% vs the 0.4% expected.  Year-over-year, CPI 2.1% in January, matching the December number.  Core CPI 0.3% vs 0.2%.  Year-over-year Core CPI, up 1.8% from December's 1.7%.  Retail Sales in January -0.3% vs the 0.2% expected, x-autos 0.0% vs 0.4% expected but CPI carries a heavier weight.  10-yr yield rises to 2.87% from 2.82% on the hotter CPI data.

Tuesday February 13th


Volatility eased a bit in the Mortgage Bond markets today with prices closing modestly higher. There were no economic reports released today. The Fannie Mae 30-yr 4% coupon closed at 102.56, +16bp. Stocks did experience more volatility today but it was somewhat contained. The Dow had a near 200 point loss soon after the opening bell only to close with a small gain. The Dow closed at 24,640.45, +39.18 points, the S&P 500 was up 6.94 points to 2,662.94, while the NASDAQ was up 31.54 points to end at 7,013.51. WTI oil closed at $59.19/barrel, near unchanged. 10-yr yield closed at 2.83%. 

Late Morning Review:

The National Federation of Independent Businesses (NFIB) reports that the underlying strength in the economy can be seen in the critical small business sector. The Small Business Optimism Index rose two points to 106.9 in January and set a record with the number of small business owners saying now is a good time to expand. "Main Street is roaring," said NFIB President and CEO Juanita Duggan. "Small business owners are not only reporting better profits, but they're also ready to grow and expand. The record level of enthusiasm for expansion follows a year of record-breaking optimism among small businesses."

There are no economic reports due for release today. Tomorrow's Consumer Price Index will be closely watched by the Fed for any signs of inflation due to the recent focus on rising prices and wages. The incoming economic reports are now very important to follow ... especially inflation. In the latest Jobs Report, wages grew at the fastest pace since 2009, which could pressure inflation higher.

The recent plunge in the U.S. Stock markets doesn't have members at the Federal Reserve scurrying to alleviate the situation. Cleveland Fed President Loretta Mester believes that the economy is safe and sound, and that it will work through recent fluctuations, which are far away from having an influence on the economic outlook. Ms. Mester went on to say that inflation should rise this year but not to a point that requires a quicker Fed reaction as it gradually begins to rise to the Fed's target range.

First thing in the Morning:

“Main Street is roaring,” said NFIB President and CEO Juanita Duggan. “Small business owners are not only reporting better profits, but they’re also ready to grow and expand. The record level of enthusiasm for expansion follows a year of record-breaking optimism among small businesses.” The 10-yr yield at 2.83% from yesterday's close of 2.85%. .

Monday February 12th


Not a lot of action in the Mortgage Bond market today with no major swings that we experienced last week. The Fannie Mae 30-yr 4% coupon lost 16bp to end the session at 102.38. There were no economic reports released today. Stocks rose for a second straight day after the big losses that took place last week. The Dow gained 410.37 points to 24,601.27, the S&P rose 36.45 points to 2,656.00 while the NASDAQ surged 107.47 points to end at 6,981.96. WTI oil settled at $59.29/barrel, near unchanged. 10-yr yield 2.85%. There are no major economic reports due for release tomorrow.


Late Morning Review:

U.S. worker wages grew in January of 2018 after several years of stagnation. The average hourly wage paid to workers in the private sector rose to $26.74 an hour (approximately $53,000 of annual compensation) in January 2018, up +2.9% in the last year. The last time private sector wages grew this much on a year-over-year basis was in May 2009.

U.S. Stocks are rebounding to begin the week after the recent decline that wiped out $5 trillion from global stock markets. The closely watched S&P 500 Index was up 1.5% on Friday but ended the week 9% below the all-time closing high of 2,872 from January 26 on the notion that increased inflation would warrant increasing interest rates at a faster-than-expected pace. A renewed rise in Stocks could come at the expense of Bond prices. The opposite is also true.

There are no economic reports due for release today but the rest of the week investors will get data from housing, manufacturing, inflation and Consumer Sentiment. The Federal Reserve will be closely watching the Producer and Consumer Price Index this week for any signs of stepped up inflation. Currently, Fed Fund Futures show a 75% chance of a hike to the short-term Fed Funds Rate at the March Federal Open Market Committee meeting.

First Thing in the Morning;

Dow +275 points at the open.  Bond prices pressured lower by rebounding Stock prices.  The S&P was up 1.5% on Friday but ended the week 9% below the all-time closing high on January 26 on the notion that increased inflation would warrant increasing interest rates at a faster-than-expected pace. The 10-yr yield rises to 2.88% from Friday's close of 2.83%. There are no economic reports due for release today but the rest of the week investors will get data from housing, manufacturing, inflation and Consumer Sentiment.

Friday -  February 9th


Volatility continued in the markets today as the tumultuous week came to a close. The Fannie Mae 30-yr 4% coupon opened at 102.78, fell to 102.56, traded to 103 before closing at 102.69, near unchanged. There were no economic reports released today. The Dow opened higher, fell by 500 points only to close with a 330.44 gain closing at 24,190.90. The S&P gained 38.55 points to 2,619.55 while the NASDAQ jumped 97.33 points to end at 6,874.49. WTI oil closed at $59.20/barrel, -$1.93. 10-yr yield 2.85%. Next week economic data is plentiful with reports on manufacturing, housing, consumer spending and two closely watched inflation reports, CPI and PPI. Have a great weekend!

This week's Newsletter: 



Late Morning Review:

The government briefly shutdown overnight but has reopened after the House approved a spending bill that will fund the government until March 23. President Trump will sign the bill into law today. The bill includes big spending increases for the military. The new bill did not off support for the DREAMers or undocumented immigrants who came to the U.S. as children.

Amazon is looking to get into the shipping delivery service that would rival behemoths UPS and FedEx, reports the Wall Street Journal. The new venture would be called "Shipping With Amazon" and would involve packages from third-party sellers of goods and services on Amazon's site, then be delivered by Amazon. The news sent shares of UPS and FedEx lower in Friday's trading. Amazon is looking to build its new shipping company by undercutting FedEx and UPS.

The closely watched S&P 500 Stock Index fell into correction territory this week declining 10% from its all-time record high of 2872 hit back on January 26. Stocks have come under pressure in the past five trading days as inflation pressures rose while the threat of higher borrowing costs led investors to take some well needed profits. The index had risen an astonishing 37% since the presidential election and was clearly in overbought territory and ripe for a decline.

First thing in the morning:

Dow +300 points at the open. There are no economic reports due for release today.  Fed Fund Futures show a 74% chance of a hike to the short-term Fed Funds Rate at the March FOMC meeting. House approves bipartisan budget deal, ending the brief government shutdown.  President Trump will now sign the bill into law.


Thursday - February 8  


MBS closed lower in a session that saw the Dow lose 1,000 points as investors screamed, "Get me out!". Investors continued to fret over higher interest rates and tried to secure profits. The Fannie Mae 30-yr 4% coupon closed at 102.72, -12bp and well off the low of 102.25. There was carnage in the Stock markets today as the S&P has fallen into correction territory losing 10.1% from its record closing high of 2,872.87 on January 26. The S&P closed at 2,581.0, -100.66 points, the Dow plunged 1,032.89 points to 23,860.46, while the NASDAQ plummeted 274.82 points to end the bear session at 6,777.15. WTI oil closed at $61.15/barrel, -$0.64. 10-yr yield 2.83%, unchanged in the face of a crumbling Stock market. There are no economic reports due for release tomorrow.

Late Morning Review:

Global Bond yields continue to rise due to several factors as the U.S. 10-year yield at the highs seen in January 2014. The Bank of England said it sees interest rates rising sooner and higher as the U.K. is boosted by global growth. Dallas Fed President Kaplan said the central bank will likely continue removing policy accommodation gradually and could hike rates three times this year. In addition, with Friday's uptick in wage growth, inflation talk is now picking up steam

At present, the annualized Core PCE, the Fed's favorite inflation gauge, is still at a low 1.5%, below the central bank's target range of 2%. Chicago Fed President Evans feels rate hikes should be put on hold until midyear with just a hint of inflation in the economy. Low inflation and waiting to see the tax reform impact could put a few rate hikes on hold.

Mortgage rates edged higher in the latest week though they still remain just above all-time lows. Freddie Mac reports that the 30-year fixed-rate mortgage jumped 10 basis points to 4.32% with an average 0.5 in points and fees, up 33 basis points since the start of the year. Mortgage rates are now at the highs seen in April 2014. Average commitment rates should be reported along with average fees and points to reflect the total upfront cost of obtaining the mortgage.

First thing in the morning:

The Fed is likely to continue removing policy accommodation gradually and could hike rates three times this year, Dallas Fed President Robert S. Kaplan told a business conference in Frankfurt on Thursday. The Bank of England sees interest rates rising sooner and higher as UK is boosted by global growth, which is weighing on the Bond markets.Weekly Initial Jobless Claims -9K to 221K and at lows seen in the early 1970s.

Wed, Feb 07


MBS kept riding the rollercoaster today as the Fannie Mae 3.5% coupon opened at 100.41, traded up to 100.62, then fell to 100 before closing at 100.22, -22bp. Due to the recent rise in mortgage rates, we have switched over to the 4% coupon this evening and will now be the main focus. The 4% closed at 102.81, -16bp. A somewhat weak 10-yr auction and a fresh budget in Washington the culprits for lower Bond prices and higher yields. Stocks ended lower after spending most of the day in positive territory as energy and tech shares weighed. The Dow lost 19.42 points to 24,893.35, the S&P 500 fell by 13.48 points to 2,681.66 while the NASDAQ was down 63.89 points to end at 7,051.96. WTI oil closed at $61.79/barrel, -$1.60. 10-yr yield 2.83%. Economic data tomorrow is limited to Weekly Initial Jobless Claims. The Treasury will sell $16B 30-yr Bonds.

1:12 pm est Mortgage Bond prices are lower.  It is likely we will see a price change.

Late Morning Review:

Home borrowing costs edged higher in the latest week due in part to an uptick in inflation pressures and as the U.S. economy continues to grow. The Mortgage Bankers Association (MBA) reports that the 30-year fixed-rate conforming mortgage rose to 4.50% in the latest week from 4.41%. The MBA also reports that the 30-year fixed-rate mortgage with jumbo loan balances also increased to 4.47% from 4.34%. However, rates in the low 4.0% levels are still historically attractive. Those rates do carry at least a 0.30 point added on tap.

Fannie Mae released its monthly Home Purchase Sentiment Index on Wednesday hitting a new all-time high. The increase was due in large part to the jump in consumers’ net expectations that home prices will increase over the next year. The net share of respondents who said now is a good time to buy a home increased 3 percentage points compared to December. Additionally, the net share who reported that now is a good time to sell a home increased 4 percentage points and is now up 23 percentage points year over year. The net share who said home prices will go up in the next 12 months increased 8 percentage points in January, while Americans also expressed a greater sense of job security.

Gas prices at the pumps continue to rise as demand grows while oil prices are on the rise. The national average price for a regular gallon of gasoline is at $2.60, up from $2.42 a month ago and above the $2.26 seen last year this time. Higher prices have been seen nationwide with the highest prices in Hawaii ($3.39) and California ($3.34). Texas saw the least expensive at $2.36. AAA says Motorists can find current gas prices along their route with the free AAA Mobile app for iPhone, iPad and Android.

First Thing in the Morning

The markets are looking to what's happening in regards to the government shutdown and the debt ceiling increase.

The MBA reports that 30-year fixed-rate mortgages with conforming loan balances ($453,100 or less) rose from 4.41% to 4.50%, the highest level since April 2014.

Tuesday - February 6  


The roller coaster ride continued today in the Stock and Bond markets. At its worst level this morning, the Dow was -567 points only to close +567 points. Talk about volatility! The move back into equities came at the expense of Bond prices. The yield on the 10-yr T Note hit 2.64% early this morning only to close at 2.80%. The Fannie Mae 30-yr 3.5% coupon hit 100.0 yesterday, closed at 100.88 yesterday and then closed at 100.44 today, -44bp. Whew! The Dow closed at 24,912.77, +567.02 points, the S&P 500 jumped 46.20 points to 2,695.14, while the NASDAQ soared 148.35 points to end the session at 7,115.88. WTI oil closed at $63.39/barrel, -$0.76. There are no economic reports due for release tomorrow. The Treasury will sell $24B 10-yr Notes tomorrow and comes after the so-so demand for today's 3-yr offering. 

Late Morning Review: 

CoreLogic reports that home prices nationwide, including distressed sales, rose 6.6% year over year in the month ended in December. On a month-over-month basis, prices increased 0.5% from November to December. CoreLogic reports that rising incomes and consumer confidence have increased the number of prospective buyers. The increase in potential buyers coupled with limited inventories of homes for sale on the market continue to drive prices higher. Looking ahead, prices are expected to cool a bit with a 4.3% gain from December 2017 to December 2018.

Foreclosure starts and completions have fallen to a 17-year low in 2017 as the economy and the housing markets continue to grow. Black Knight Financial reports that there were 649,000 foreclosure starts in 2017, which was the fewest since 2000. First-time foreclosure starts were 15% below 2016 levels and about half the annual average seen from 2000-2005. In addition, 2017 saw the lowest single-year total for foreclosure completions since the turn of the century.

U.S. Stock markets plunged yesterday with the Dow Jones Industrial Average shedding 1,175 points, its largest one day point loss in its 122-year history. The Dow had been up 40% since the presidential election in November 2016 so a correction was overdue. The fundamentals are still in pace for the U.S. economy. Economic growth continues while the job market continues to expand and consumer confidence is at multi-year highs. 

Monday - February 5  


U.S. Stocks plunged today in an extremely bearish session that saw the Dow lose nearly 10% today. Investors shifted to the safe haven of the Bond markets with the 10-yr yield falling to 2.70%. The Fannie Mae 30-yr 3.5% coupon rose 69bp to end at 100.91 and up 88bp from its session low of 100.03. The Dow plunged 1,175.21 points to 24,345.75, the S&P 500 fell 113.19 points to 2,648.94, while the NASDAQ plummeted 273.42 points. WTI was last seen at $63.50/barre -$1.96 in after hours trading. There are no economic reports due out tomorrow

Late Morning Review: 

Economic activity in the non-manufacturing sector grew in January for the 96th consecutive month, reports the Institute of Supply Management (ISM). The ISM Service Index rose to 59.9 last month, above the 55.9 in December and above the 56.7 expected. within the report it showed that the news orders index and the employment component both saw big gains. The report revealed that, overall, the majority of respondents’ comments are positive about business conditions and the economy. They also indicated that recent tax changes have had a positive impact on their respective businesses.

As of the end of 2017, there are more Millennials (83 million) in the United States than there are Baby Boomers (75 million). Millennials were born between 1981-97 and were age 20-36 in 2017, while the Baby Boomers were born between 1946-64 and were age 53-71 in 2017.

The U.S. Stock markets finally have finally occurred some losses after record highs seen in January. The blistering pace in the markets saw the Dow Jones Industrial Average up 44% from the 2016 presidential election to January 29. Stocks were buoyed by an improving economy and job markets, low interest rates and the recent tax cut plan.


.Friday - February 2


A strong Jobs Report for January sent both Stock and Bond prices lower today. Bonds are lower on recent strong economic data coupled with today's better than expected job creation and a rise in wages. Stocks were lower before the Jobs report data was released and fell lower after the job numbers were reported. Rising interest rates hurt Stocks for borrowing costs are on the rise. The Fannie Mae 30-yr 3.5% coupon closed at 100.22, -34bp. The Dow lost 665.75 points to 25,520.96, the S&P 500 gave up 59.85 points to 2,762.13, while the tech heavy NASDAQ was down 144.91 points to end at 7,240.94. WTI oil settled at $65.45/barrel, -$0.35. 10-yr yield edged higher to 2.84%. Next week's economic calendar is virtually non-existent. Have a great weekend!


This weeks newsletter:

chart 180205


Late Morning Review:

Rates on:  have been updated

The Bureau of Labor Statistics reported on Friday that U.S. employers added 200,000 new workers in January while November and December were revised lower by a total of 24,000. The big news within the report was a rise in annual wage growth, which surged 2.9% from January 2017 to January 2018, the biggest increase since June 2009. Wages have been stagnant but the unexpected rise is a key metric for the economy. The Unemployment Rate remained at 4.1%, the Labor Force Participation Rate was unchanged at 62.7%, while the U6 number (or total unemployed) edged higher to 8.2% from 8.1%. Overall, it was a solid report.

Consumer Sentiment beat expectations in January for the final monthly reading coming in at 95.7 versus the 95 expected and up from 94.4 in the early monthly reading. A booming Stock market and solid job growth were a few measures that kept the index above average historically. Conditions for purchasing homes fell to the lowest level in seven years due in part to low inventories. A spokesperson from the index said the tax cuts will increase discretionary spending.

With the Super Bowl airing on Sunday, here are a few facts: According to the Department of Agriculture, Super Bowl Sunday is America's second largest food consumption day behind Thanksgiving. On the Monday after the game, it is expected that 1.5 million workers will call in sick. Americans may drink 325.5 million gallons of beer during the game. It's estimated that the NFL collects around $620 million of revenue from this event, which is the highest in history for a one-day sporting event. Enjoy the game!

First Friday of the month Employment Report

8:42 AM
Wage growth of 2.9% y-o-y is biggest advance since end of June 2009.
The Unemployment Rate remained at 4.1% in January.
The rise in wage growth and the headline Non-farm Payrolls pushes Bond prices lower.
Average hourly earnings +0.3%, in line. Year-over-year wage growth rises to 2.9% from 2.7% in December.
Non-farm Payrolls rise by 200K vs the 180K expected. November and December revised lower by a total of 24K.  (See chart below)

employment 18001

Thursday - February 1  


MBS took a dive off a cliff today ahead of tomorrow's Jobs Report for January. The Atlanta Fed predicts that GDP is forecasted to rise 5.4% in Q1 2018 (from 4.2%) following today's solid ISM Manufacturing Index. The GDP news pushed Bond prices lower and yields higher. The Fannie Mae 30-yr 3.5% coupon closed at 100.50, -47bp ... on January 3, the Bond was at hit am intraday high of 102.72. Stocks closed mixed as traders sat on their hands ahead of the Jobs report. The Dow gained 37.32 points to 26,186.71, the S&P 500 was down a meager 1.83 points to 2,821.98, while the NASDAQ fell by 25.61 points to end at 7,385.86. WTI oil $65.80/barrel, +$1.07 as OPEC's supply cuts remain in place. U.S. oil production topped 10 million barrels per day for the first time since 1970. 10-yr yield 2.78%. The January Jobs report will be released at 8:30 a.m. ET. Be sure to be tuned in around 8:30 for the numbers and the markets reaction.


Check out Thursday's Market Minute which is a quick way to educate yourself on the market:



Late Morning Review:

Employers across the nation planned more job cuts in January than in December, which were concentrated in the retail sector after the holidays. Outplacement job firm Challenger, Gray & Christmas, Inc. reports that U.S. companies planned to lay off 44,653 jobs in January, 37.7% more than the 32,423 cuts announced in December. "The good news for those who are finding themselves separated from their previous companies is that employers are scrambling to find talent,” said John Challenger, chief executive officer of Challenger, Gray & Christmas, Inc.

The Federal Reserve released its monetary policy statement yesterday painting a positive picture of the U.S. economy. The Fed said the labor market has continued to strengthen and that economic activity has been rising at a solid rate. The Fed went on to say that gains in employment, household spending and business fixed investment have been solid, and the unemployment rate has stayed low. Inflation is expected to move up this year and to stabilize near the Fed's target range of 2%.

Here are a few stats on housing for December 2017: The median sale price of existing homes sold in the United States in December 2017 was $246,800, down from an all-time peak median sales price of $263,300 from June 2017. The low point for this statistic was during the 2008-12 real estate crisis at $154,600 in January 2012. 




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