Executive Rate Market Report

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Treasuries and mortgages started slightly weaker this morning with US stock indexes trading better in the futures markets and Europe’s key equity markets improving. The 10 yr from a technical perspective still has difficulty holding below 2.70% (yesterday’s close 2.68%), early this morning the note trading at 2.71%. Emerging-market stocks rose to a four-month high as technology shares extended gains and on bets China will take steps to boost growth. Equities in India surged the most among peers, while South Korea’s won strengthened. Sentiment swings in the global equity markets continue to confuse investors; the recent selling in US key indexes is the beginning of more eventual selling that is likely to take the DJIA to 15K over the next two months but as noted previously the move lower in stocks isn’t going to be easy. The underlying bullish sentiment will be difficult to dislodge, most market participants remain bullish on the economic outlook, hard to shake off human optimism. As long as daily improvements in stocks occur the bond and mortgage markets have no reason to decline in yield. Some believe treasuries are supported these days by the Ukraine issues, to some extent that is correct but as we have noted in previous reports, as long as there are no bullets fired the safe haven effect on the bond market is a minor one.

The DJIA opened +47, NASDQ +18, S&P +4; 10 yr note 2.71% +3 bp and 30 yr MBS price -16 bp from yesterday’s close.

So far this week not much to move markets; this afternoon however, there are two events that could add volatility. At 1:00 Treasury will auction $21B of 10 yr notes, recent Treasury auctions have been meeting with very strong demand; yesterday’s 3 yr note was no exception. The 10 this afternoon however is more important, strong bidding will to some extent validate the demand for treasuries and support mortgage rates in the process. If the 10 auction doesn’t meet strong demand and stocks are still doing well more price declines late today may be expected.
Not only the 10 yr auction, the minutes from the Mar 19th FOMC meeting will be released at 2:00. The minutes may provide a better insight about the debates that led to Jane Yellen commenting that the Fed would begin increasing interest rates about six months after ending the Fed’s monthly bond and MBS purchases. Based on the tapering so far and the belief the Fed will continue to cut $10B a month from purchases, the end will occur in Oct; six months later according to her comments at her press conference would be April 2015, much earlier than what markets had been led to believe. One week later Yellen spoke in Chicago and “clarified” her previous remarks, basically retracting the time frame and fell make to ‘data dependent’ the key to increasing interest rates.  
The weekly MBA mortgage applications data: The Market Composite Index, a measure of mortgage loan application volume, decreased 1.6 percent on a seasonally adjusted basis from one week earlier. The Refinance Index decreased 5 percent from the previous week and is at its lowest level since the end of 2013.  The seasonally adjusted Purchase Index increased 3 percent from one week earlier.  The refinance share of mortgage activity decreased to 51 percent of total applications from 53 percent the previous week and is at its lowest level since July 2009. The adjustable-rate mortgage (ARM) share of activity remained unchanged at 8 percent of total applications. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) remained constant at 4.56 percent, with points increasing to 0.33 from 0.31 (including the origination fee) for 80 percent loans.  The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,000) increased to 4.49 percent from 4.46 percent, with points decreasing to 0.14 from 0.27 (including the origination fee) for 80 percent  loans.  The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA decreased to 4.19 percent from 4.21 percent, with points increasing to 0.16 from 0.15 (including the origination fee) for 80 percent loans.  The average contract interest rate for 15-year fixed-rate mortgages remained constant at 3.62 percent, with points increasing to 0.31 from 0.23 (including the origination fee) for 80 percent LTV loans. The effective rate increased from last week. The average contract interest rate for 5/1 ARMs increased to 3.26 percent from 3.25 percent, with points increasing to 0.5 from 0.38 (including the origination fee) for 80 percent  loans. 

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