On Wednesday, the 3% coupon has stepped down another level on the Down Escalator… not good. Contributing to the Bonds decline was a poor 10-yr $24B Note auction that garnered a “C-” rating. Clearly investors are moving money out of Bonds and into stocks. Thursdays Auction of 30 year Bonds garnered a B+ rating, the best of three Auctions this week, which bolsterd Bond prices. Mortgage Bonds end the week not much lower than where they ended last Friday.
Remember Low Bond Prices means Higher Mortgage Rates. The 3% settled at 102.88 down 6bp and off their worst levels of the session. Short term locking into Mortgage Rates is the advise as the 3% Bond Price continues to trade below the 200-day Moving Average.
Stocks are due for a pause from their rally and it might just happen once prices test the all-time highs – but until that time, clients only need to see the Down Escalator and consider locking. We can’t be bullish or optimistic on Bonds until the 3% Coupon steps off this clear and ugly downtrend.
Stocks ended slightly lower, the Dow rose 8.37 points to 13,981.76, the S&P 500 fell 1.59 points to 1,519.79, while the Nasdaq closed the week at 3,192.03 down 6.63 points. Oil was last seen at $95.92/barrel down $1.38. The capital markets are all closed Monday in observance of Presidents’ Day. Our office is also closed.
Housing News
President Obama gave his first State of the Union address for his second term last night and one of his points was a refinancing bill that is sitting in Congress. The bill calls for those homeowners with loans backed by Fannie Mae and Freddie Mac can refinance as long as they are current on their monthly mortgage payments.
The National Association of Realtors reported on Monday that the national median existing single-family home price surged 10% since last year this time to $178,900. The year-over-year increase of 10% was the largest gain since the fourth quarter of 2005 and signals that the housing recovery continues to gather some steam.
Foreclosure starts decline to a six-year low.
Freddie Mac says the housing sector is recovering with room for growth due to record-high home-buyer affordability.
Economic News
The National Federation of Independent Business reports that its optimism index rose by 0.9% to 88.9 in January, up from its 2 1/2 year low registered in November.
The Labor Department’s December Job Openings and Labor Turnover Survey (JOLTS) report showed that job openings, hires, and separations were little changed from November.
“The average interest rate paid by the US government on the country’s interest-bearing debt has been cut in half over the last 6 years, dropping from 5.034% on 12/31/06 to 2.534% as of 11/30/12.” If rates were to rise, that would cause larger payouts on the debt held by the US, which at the present time it can’t afford. It is also a message for our profligate government to reign in our debt and not be complacent with the present rate environment…if rates rise, the debt service will be overwhelming.
Sources: Bloomberg, MMG, Housing wire, CNBC