Bonds, Inflation, Stocks and Interest Rate News

According to the Federal Statement from yesterday, the economy is slowly but surely improving in most areas. Housing, however, is still struggling. If everything can continue to improve and grow stronger, it may cause interest rates to slowly climb. They also mentioned that inflation may increase because of higher energy prices, which is not good news for bonds. The Fed is putting pressure on selling Bonds still, especially now that most of the banks passed their strict financial stress tests. In the aftermath of this test, JP Morgan Chase actually decided to do a stock repurchasing program to boost its dividend. This had an effect on the overall stocks. Because of all this, we would recommend floating on new transactions as long as prices are above the 100-day moving average. If the bond falls below that point, we'd advise locking.

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China's Large Trade Deficit causes European Stocks to Fall

China recently had their biggest trade deficit in 12 years. This sparked concerns from miners and oil firms that commodity prices would drop and there'd be slower demand in China, which is the world's second largest economy. The country did indeed report a $31.48 billion deficit for February after they had a $27.28 billion surplus in January. This signals an economic slowdown in China which could potentially lead to a global slowdown.

In London, miners and energy firms also took a hit in the stock market this week. Banks were also down due to continued focus on the developments in Greece's debt restructuring. Immediately after Greece's success with its debt restructuring, new Greek government bonds that were issued surged to the highest levels in the eurozone. This indicates that many are skeptical about Greece's ability to reach a sustainable debt level. Nonetheless, it is expected that the finance minsters will agree to Greece's second bailout later today.

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Mortgage Update

The debt issue in Greece is still not completely resolved, but it is nearing the end. In the meantime, Stocks are benefiting at the expense of Mortgage Bonds which are trading at lower levels now. Greece's problems are far from over, however. This debt deal is only giving them a small boost in the now, but it will bring up new problems down the road. Germany has imposed tighter fiscal union guidelines on the country, and they also have to contend with the austerity measures that we've mentioned before.

Switching back to America, a new Jobs Report is expected soon that will detail how we're doing with our economic recovery. A recent count of Jobless Claims is at 362,000 which is higher than last week's 354,000. This puts the Unemployment Rate at 8.3% right now.

The Jobs Report will have more to say, but right now we would advise our clients to Lock before the report comes out. There could be a negative effect on Bonds, making them drop even further, depending on the report. That would in turn cause home loan rates to increase. Lock while you can!

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News for the Week of Jan 8th: Reports and Auctions

There are four reports that are expected to be released this week that may concern mortgage rates depending on its economic data. Also, two  important treasury auctions will take place.  The Stock Market will be a major contributor early in the week for any movements in bond prices and mortgage rates.

At 2:00 PM ET on Wednesday, the Federal Reserve's Beige Book Report will be released. It will give details of the economic condition throughout the US by region. Since the Fed relies heavily on it during their FOMC meetings, its results can have a fairly big impact on the financial markets and mortgage rates if it reveals any surprises, particularly regarding inflation, unemployment or future hiring.

Wednesday and Thursday bring the treasury auctions featuring the sale of 10-year-notes and 30-year-bonds. The 10-year sale is the more important of the two as it will give us a better indication for demand of mortgage-related securities. If there is a strong demand from investors, we should see the bond market move higher during afternoon trading the days of the auctions. But a lackluster interest from buyers, particularly international investors, would indicate a waning appetite for longer-term U.S. securities and lead to broader bond selling. The selling in bonds would result in upward revisions to mortgage rates.

On Thursday, the most important report of the week is released: December's Retail Sales data. This comes from the Commerce Department. The report measures consumer spending and tracks tracks sales at retail establishments.  Customer spending makes up two-thirds of the U.S. economy so this data is watched carefully. A sales increase of 0.4% is expected.  A smaller than expected increase in sales would indicate consumers did not spend as much as thought over the holiday season, helping to prevent rapid economic growth. That would be considered good news for the bond market and mortgage rates.

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