Friday, 3/5/10 4:10 PM
Never seems to fail; every first Friday of the month when the employment report hits, markets convulse with high volatility. Today was the same; the less than expected non-farm jobs (-36 compared to -70K expected, and the unemployment unchanged with markets looking for an increase of 0.1%) triggered huge selling this morning in the treasury and mortgage markets. Mortgage prices at 9:30 were off just 5/32 (.15 bp) then by 10:15 selling increased driving mortgage prices down 43 bp on the day. Most lenders stepped in and re-priced about 11:15; in the meantime we warned it would happen and suggested locking everything. This afternoon however prices improved off the lows as the volatility continued. The big lenders re-priced worse at about 1:00 but most have just recently re-priced again to the better.
Through the week everyday there was more concern that the snow storms in the East would increase the decline in non-farm jobs; on Monday morning the consensus was a decline of 20K, by yesterday afternoon the estimate had risen to -75K jobs. The 36K actual decline was obviously much better than what markets had discounted. Taking the revisions to Jan and Dec into account and the three month decline in jobs was unchanged. That all led to renewed optimism, rallied equities and drove rates higher. It wasn't only the weather that increased pessimism; the huge decline in Jan consumer confidence last week generated concerns job losses in Feb would be much higher than the estimates. Rarely does the monthly employment data comer close to the estimates, today no different.
At 3:00 this afternoon another negative for the rate markets and the outlook for continued economic weakness. Jan consumer credit widely expected to fall $3.8B, increased $4.96B. The first increase in consumer credit in a year and the largest since July 2008. For the past year consumers have circled their wagons and held off increasing outstanding credit; one month isn't a trend but in this nervous environment about where the economic recovery actually is any news that even sniffs of increasing consumer spending is seen as the end all for any debate. Not what the bond market wants to see if we want lower rates.
You go Barney! Is it possible Barney is on to something more than finger pointing and second guessing? " House Financial Services Committee chairman Barney Frank, D- Mass., is calling on CEOs of four major banks to work with the Treasury Department and banking regulators to deal with second mortgages that have become an obstacle to modifying troubled first liens. The four banks -- Bank of America, Citigroup, JPMorgan Chase and Wells Fargo -- have $452 billion of seconds on their books. Rep. Frank told a joint conference of minority real estate professionals that investors in firsts are ready to write down the value of their liens but second lien holders are reluctant to participate because of accounting and regulatory capital issues. "The second liens in many cases are not worth anything," Rep. Frank said, adding that banks have not acknowledged it under the accounting rules. "At the point at which they acknowledge it, the bank's capital could be negatively affected," the chairman said. Rep. Frank said officials at Treasury, FDIC and HUD are trying to figure out how to deal with the accounting issues. They also are exploring offering incentives -- such as giving second lien holders a stake in the future appreciation of a property." (Nat'l Mtg News)
Today was only the second day in over two weeks that mortgage prices declined, and the decline today wasn't as much as it appeared it would be late this morning. The sell-off today somewhat lessened the overbought technical readings on the momentum oscillators.
This week interest rates increased somewhat; the 10 yr note up 7 basis points, the 5 yr held well only up 3 bp, the 2 yr note up +8 bp and the 30 yr bond yield increased 8 basis points. Mortgage rates were generally unchanged on the week; holding well against treasuries; prices for 30 yr fixed up 4/32 (.12 bp), FHAs +4/32 (.12 bp) and 15 yr fixed loans +5/32 (.15 bp). Crude oil +$2.00, gold +$14.00. The DJIA +241, NASDAQ +88, S&P +35.
Next week not much data until the end of the week with weekly unemployment claims on Thursday and Feb retail sales on Friday. The bond markets face another round of Treasury buying with $74B of 3 yr, 10 yr and 30 yr issues being sold. Auctions start on Tuesday with $40B of 3 yr note, Wed $21B of 10 yr notes and Thursday $13B of 30 yr bonds. Demand has been fairly strong for the huge Treasury borrowing, traders continue to expect that will be the case next week also.
PRICES @ 4:00 PM
10 yr note: 99.16 -20/32 3.69% +8 BP
5 yr note: 100.04 -10/32 2.35% +8 BP
2 Yr note: 99.30 -3/32 0.90% +4 BP
30 yr bond: 99.22 -38/32 4.64% +7 BP
Libor Rates: 1 mo 0.229%; 3 mo 0.253%; 6 mo 0.390%; 1 yr 0.850%
30 yr FNMA 4.5 Mar: 101.07 -7/32 (.22 bp) (-2/32 (.06 bp) frm 9:30)
15 yr FNMA 4.0 Mar: 102.05 -4/32 (.12 bp) (+3/32 (.09 bp) frm 9:30)
30 yr GNMA 4.5 Mar: 101.23 -7/32 (.22 bp) (-2/32 (.06 bp) frm 9:30)
15 yr GNMA 4.0 Mar: 102.27 -4/32 (.12 bp) (-3/32 (.09 bp) frm 9:30)
Dollar/Yen: 90.35 +1.20 yen
Dollar/Euro: $1.3620 +$0.0041
Gold Apr: $1132.50 -$0.60
Crude Oil Apr: $81.73 +$1.52
Goldman-Sachs
Commodity Index: 526.34 +6.61
DJIA: 10566.12 +121.98
NASDAQ: 2326.35 +34.04
S&P 500: 1138.69 +15.72