Market Snapshot 1/11/2012

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A little better at the start today; at 8:30 the 10 yr note +7/32 at 1.94% -2 bp frm yesterday’s close. The 10 yr once again tested and held the key 2.00% level yesterday; yesterday based on closes there was no movement in the bond market and MBSs were also relatively unchanged. Equity markets in Europe are weaker this morning, in the US the indexes prior to the open were slightly weaker. US interest rates have been generally unchanged for over a week now; Europe’s debt problems keeping a minor bid in US treasuries while improved economic outlooks are weighing on the markets. A balance between the two forces has stabilized rates for the moment.

There is no economic data this morning; later this afternoon (2:00) the Fed will release its Beige Book; at 1:00 Treasury will auction $21B of 10 yr notes, yesterday’s 3 yr auction went well with decent demand. Chicago Fed President Charles Evans on CNBC this morning saying the economic outlook is brightening but is still soft enough to need central bank support; he said the data recently isn’t strong enough or uniform enough to assert momentum is increasing. Evens is a hawk and one of the most vocal Fed officials calling for aggressive stimulus actions. Evans isn’t concerned about inflation and wants the Fed to tolerate increased inflation, possibly as high as 3.0%. Inflation fears are way over done in terms of concern, there is no pricing power and it won’t be surfacing for quite a while.

News out of Europe this morning; Germany’s economy may be faltering. German  Stocks slipped after a report showed that the debt crisis caused the economy to contract 0.25 percent in the fourth quarter from the third. Growth slowed to 3 percent in 2011, the Federal Statistics Office in Wiesbaden said in an unofficial estimate. Economists including Christian Schulz at Berenberg Bank expect gross domestic product to contract again in the current quarter. A recession is defined as two consecutive quarters of declining GDP. After yesterday’s biggest rally in a week, as the report showed that Europe’s largest economy contracted in the final quarter of 2011, indicating it may be headed for a recession. Confusion and uncertainty continue to dominate; one day a strong rally, the next talk of recession in Germany’s future----it is no wonder that markets are essentially frozen with interday volatility with not much change when viewed over a longer period.

At 9:30 the DJIA opened down 50, the 10 yr note +7/32 at 1.94 -2 bp and MBS prices +1/32 (.03 bp).

Mortgage applications increased 4.5 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending January 6, 2012. The results include an adjustment to account for the New Year’s Day holiday. The Market Composite Index, a measure of mortgage loan application volume, increased 4.5 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 34.4 percent compared with the previous week. The Refinance Index increased 3.3 percent from the previous week. The seasonally adjusted Purchase Index increased 8.1 percent from one week earlier. The unadjusted Purchase Index increased 41.9 percent compared with the previous week and was 17.9 percent lower than the same week one year ago. The refinance share of mortgage activity decreased to 80.8 percent of total applications from last week’s survey high of 81.9 percent. The adjustable-rate mortgage (ARM) share of activity increased to 5.4 percent from 4.7 percent of total applications from the previous week. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) increased to 4.11 percent from 4.07 percent, with points decreasing to 0.41 from 0.53 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans. The effective rate also increased from last week. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,500) decreased to 4.34 percent from 4.41 percent, with points increasing to 0.47 from 0.44 (including the origination fee) for 80 percent LTV ratio loans. The effective rate also decreased from last week. The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA remained unchanged at 3.96 percent, with points increasing to 0.72 from 0.71 (including the origination fee) for 80 percent LTV ratio loans. The effective rate also remained unchanged from last week. The average contract interest rate for 15-year fixed-rate mortgages increased to 3.40 percent from 3.37 percent, with points decreasing to 0.37 from 0.50 (including the origination fee) for 80 percent LTV loans. The effective rate also decreased from last week. The average contract interest rate for 5/1 ARMs decreased to 2.90 percent from 2.91 percent, with points increasing to 0.49 from 0.48 (including the origination fee) for 80 percent LTV ratio loans. The effective rate also decreased from last week. (Mortgage Bankers Assoc)

The euro weakened for the first time in three days against the dollar and the yen as Fitch Ratings added to concern the region’s debt crisis will spread. The euro slid versus 14 of its 16 most-traded counterparts after Fitch’s head of sovereign ratings, David Riley, said the European Central Bank should boost bond purchases to avert a collapse of the shared currency. The bank meets tomorrow. German data showed the region’s largest economy may be on the brink of recession. The rating agencies these days don’t just rate debt, they now are saying what banks and central banks should od; everyone in the pool. Rating agencies screwed up the sub-prime mess and were instrumental in sending the global economy into a long term slowdown.