Thursday's Suggestion: For now, carefully floating

June 15th, 2017

Suggestion: Mortgage Bonds are edging lower and trade near a key technical level. For now, carefully floating is recommended.

Overview: The Federal Reserved raised the benchmark Fed Funds Rate by 0.25% yesterday, as expected, bringing the rate to the 1% - 1.25% level. That pegs the Prime Rate at 4.25%. The statement didn't offer many surprises ... it read that the labor market has continued to strengthen and that economic activity has been rising moderately so far this year. Household spending has picked up in recent months, and business fixed investment has also continued to expand. The Fed said that inflation on a 12-month basis is expected to remain somewhat below 2% in the near term but to stabilize around the Fed's 2% target over the medium term.

In Janet Yellen's news conference following the release of the statement, she said the Fed plans to reduce its $4.5T balance sheet and said it could happen "relatively soon" if the economy evolves in line with expectations. If the taper does begin this year it will happen in the following manner: The Fed will begin allowing a reduction of a maximum of $10 billion of securities ($6B of Treasuries and $4B of mortgage securities) every month. That cap will increase by $10B of securities every quarter until the balance sheet is declining by $50B per month.

In economic news, regional manufacturing data was better-than-expected as the sector continues to experience peaks and valleys. The Philadelphia Fed Index rose to 27.6 in June, now positive for 11 consecutive months. The report said that about one-third of the firms expect to add to their payrolls through the end of the year. In the New York State region, the Empire State Survey surged to 19.8 in June, up from -1.0 in may and well above the 6.0 expected. It was the highest level in more than two years. The new orders, inventory, shipments and employment components all rose during the month.

What Is Going On With Interest Rates?  #wigowir

Below is the news when it happened and the market’s reaction.  For a full view of the day 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.

10:20 AM ET  3.5% Fannie Mae 30-yr coupon down 19 bp at a price of 103.12  up 6 bp when rates were set today at 10:00 am Open 103.19  High 103.25 Low 102.97

Numbers to watch for:

Currently Buying Opportunities for Traders

102.86  50 day moving average

103.04 25 day moving average

103.00  Traders keep their eye on round numbers and this is one them with lots of zeros 

103.12  Traders keep their eye numbers that have been resistance or support in the past.  This is one of them.

Currently Selling opportunities for Traders

103.14 200 day moving average

103.59  High of 11/17/16

104.12  High of 11/10/16

 

Thu, Jun 15 10:10 AM  Freddie Mac reports that the 30-yr fixed conforming mortgage rate edged higher to 3.91% from 3.89% with 0.5 in points and fees. 
Thu, Jun 15 10:05 AM  The New York Fed will be purchasing up to $1.775B in 30-yr Fannie/Freddie 3.5% and 4% coupons beginning later this morning at 11:15 a.m. ET. 
Thu, Jun 15 10:02 AM  The NAHB Housing Market Index declines 2 points to 67 in June, below the 70 expected. 
Thu, Jun 15 9:38 AM  Stocks open lower, Dow -55 points. 
Thu, Jun 15 9:17 AM  The Bank of England kept policy rates on hold with a 5-3 decision ... the unexpected high level of dissent is weighing on Bond prices. 
Thu, Jun 15 8:47 AM  The Fannie Mae 30-yr 3.5% (103.12) coupon trades near resistance at the 200-day Moving Average (103.14). 
Thu, Jun 15 8:36 AM  June Empire Manufacturing 19.8 vs 6 expected. Philly Fed 27.6 vs 26 expected. Weekly Initial Jobless Claims decline 8K to 237K, below the 240K expected. 
Thu, Jun 15 8:34 AM  Growth concerns, resumption of tech drop and a report that President Trump is being investigated for possible obstruction of justice sends S&P futures considerably lower. 
Thu, Jun 15 8:24 AM  WTI oil edges lower by $0.17 to $44.56/barrel. 
Thu, Jun 15 8:24 AM  U.S dollar index 97.33, +0.40. 
Thu, Jun 15 8:24 AM  June Philly Fed, Empire Manufacturing, Weekly Initial Jobless Claims at 8:30, NAHB Housing Market Index at 10. 
Thu, Jun 15 8:22 AM  10-yr T Note yield rises to 2.15% from yesterday's low of 2.10%. 
Thu, Jun 15 8:17 AM  Yellen said the Fed plans to reduce its $4.5T balance sheet and could happen "relatively soon" if the economy evolves in line with expectations. 
Thu, Jun 15 8:16 AM  MBS open slightly lower as the markets digest yesterday's Fed statement where the Fed Funds Rate rose 0.25% to the 1% - 1.25% level. 

 

Johnmarbury.com has attempted to verify the information contained on this post.  However any aspect of such may change without notice.  Johnmarbury.com does not provide investment advice and does not represent that any of the information or related analysis is accurate or complete at any time. On October 5th we started posting our rates and leaving them on the site for you to refer back to. This will allow  you see where actual rates have been along with the news that caused the fluctuations on the rate sheet.  I ask that you forgive my spelling and grammatical mistakes. This is due writing skills that are lacking and the need to communicate quickly.  Most of the information posted on this blog along with the charts and indexes are available all during the day to the subscribers of www.themortgagemarketguide.com  The cost of subscription is very reasonable.

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