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Mortgage Rates Maintain Recent Lows

November 19,2018
by admin

Mortgage ratesunexpectedly dropped to their lowest levels in more than a month as of last Friday. That assertion is at odds with quite a few media reports that cited Freddie Mac’s weekly survey data saying that rates were essentially unchanged from the previous week. This occurred because Freddie’s survey only captures the first few days of any given week and most of last week’s improvement took place on Thursday and Friday. As such, this week’s Freddie surveys should reflect that nice drop in rates.

How nice is “nice?” In absolute terms, we’re talking about something slightly less than an eighth of a percentage point in terms of a typical 30yr fixed rate from the average lender. That’s actually a fairly quick move relative to the average pace of mortgage rate movement. In any event, it’s the nicest drop we’ve seen in more than a month, and it brings us to the lowest levels in more than a month as well. The caveat is that we’re still fairly close to the long-term highs (highest since 2011).


Today’s Most Prevalent Rates

  • 30YR FIXED – 4.875-5.0%
  • FHA/VA – 4.375%-4.625%
  • 15 YEAR FIXED – 4.375%-4.5%
  • 5 YEAR ARMS – 4.375%-4.875% depending on the lender



Ongoing Lock/Float Considerations

  • Rates continue coping with several big-picture headwinds, including: the Fed’s rate hike outlook (and general policy tightening), the increased amount of Treasury issuance to pay for the tax bill (higher bond issuance = higher rates), and the possibility that fiscal stimulus results in higher growth/inflation (which certainly seems to be the case so far in 2018).

  • While rates were able to recover and stay sideways in the summer months, September and October have seen a surge up to the highest levels in more than 7 years.

  • Upward pressure can continue as long as economic growth and inflation continue running near long-term highs. Stay defensive (i.e. generally more lock-biased). It will take a big change in economic fundamentals or geopolitical risk for the big picture to change. Such things tend to not happen as quickly as we’d like.
  • Rates discussed refer to the most frequently-quoted, conforming, conventional 30yr fixed rate for top tier borrowers among average to well-priced lenders. The rates generally assume little-to-no origination or discount except as noted when applicable. Rates appearing on this page are “effective rates” that take day-to-day changes in upfront costs into consideration.

Sweat Equity as a Downpayment? Yes, Actually

November 19,2018
by admin

Freddie Mac has announced a new collaboration with a handful of rural non-profits to expand sweat equity opportunities to homeowners in several rural and underserved regions. Potential homebuyers in selected areas will be able “to leverage their construction skills to cover down payment and closing costs when purchasing a home.”

The company said the expansion of sweat equity parameters of its Home Possible program, part of its “Duty to Serve” mandate, is designed to support the renovation of aging homes and provides borrowers with an additional form of down payment instead of cash. There is no limit on the amount of sweat equity that can be applied toward a down payment as long the labor is completed in a skillful manner to support the appraised value-and is certified by an appraiser.

“More than 61 million Americans live, work and raise families in rural areas and other historically underserved communities,” said Mike Dawson, vice president of Single-Family Affordable Lending Strategy and Policy at Freddie Mac. “In rural America, many creditworthy families with low-to-moderate incomes face significant barriers to homeownership, especially obtaining the down payment. This offering will help them use their own construction skills to make up that difference, increasing the pool of mortgage-ready consumers.”

Nick Mitchell-Bennett, executive director of one of the company’s partners, the Community Development Corporation of Brownsville (CDCB), said that lenders and borrowers in high-needs rural markets can face special challenges. “The enhancements Freddie Mac is making to its sweat equity parameters are welcome and demonstrate the organization’s efforts to address these specific challenges.”

The other partnerships are with Federation of Appalachian Housing Enterprises (Fahe), Hope Enterprise Corporation (HOPE), Homeownership Education Resources Organization (HERO), Enterprise Community Partners, Next Steps and NextJob. Through these collaborations, Freddie Mac is providing technical-assistance and training to help increase their capacity to offer homebuyer education, housing counseling, employment and re-employment services and related resources to families in Middle Appalachia, the Lower Mississippi Delta, the Colonias and Native Americans in Indian reservation areas.

MBS RECAP: Weaker Start, But Stronger Finish Thanks to Econ Data

November 19,2018
by admin

Builder Confidence doesn’t typically move markets, but today it did. For the past several month’s, the NAHB’s Housing Market Index (generally considered tantamount to “builder confidence”) looked like it was bucking the consensus among other housing data that all but verified a decisive cooling trend. But it made up for its recent lack of movement today. It’s as if builder confidence did’t get the memo on the shift in housing and suddenly rushed to catch up.

This resulted in bond market improvement and stock losses, and that’s a very tall order for this data. It speaks to two things. First, markets are indeed concerned about the housing market and the role it could play in a broader economic shift. Many see such a shift beginning within 12 months at this point. Second, it’s Thanksgiving week and liquidity is already lightening. Lighter liquidity means that any given move can be a bit bigger than it otherwise might be.

Stocks continued losing ground after the first 37 minutes of the move that followed the housing data. Bonds refused to go much lower and ultimately ended the day right in line with those 10:37AM levels.

MBS Day Ahead: Slow Holiday Trading Unless These Key Levels Break

November 18,2018
by admin

Happy Thanksgiving week. These can go a few different ways for bond markets with 2 main varieties standing out. Both varieties are the product of illiquidity (fewer buyers and sellers at any given price point). In the first case, those buyers and sellers are roughly balanced and neither side has an stubborn/desperate outlier. The result is a boring, sideways grind for 3 days followed by a forgotten half-day on Friday.

In the second case, there is an outlier or two who is stubborn or desperate–a buyer with big buying needs or a seller who isn’t willing to give up their bonds without getting top dollar. In an illiquid environment, such outliers can quickly drive prices/yields higher or lower. The most frustrating part of watching such things happen (well, I guess it’s only frustrating to us if rates are moving higher) is that there’s usually not an apparent motivation for the move. It’s purely tradeflow driven.

In the frustrating case, bond yields would simply move back up into their prevailing range. Not pleasant, but not a big deal in terms of implications. In the more positive case, yields would need to break their recent intraday lows at 3.06% before we could even consider something other than a slow, holiday trading week.

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There are key levels in stocks as well, and a breakout could inform momentum for bonds, to some extent. Stocks aren’t nearly as close to their technical lines, so the mere process of getting there would be somewhat meaningful in and of itself. Simply put, if stocks were to break below the lower consolidation line (upwardly sloped gray line) it would likely coincide with bonds breaking below 3.06%.

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Data and events are fairly sparse, with Wednesday being the only day with a fair amount of economic reports. Of those, I’d normally say Durable Goods would be the headliner, but in this case, I’m not sure there is a headliner. The exception would occur if, by some miracle, Durable Goods data manages to come in above 0.0. It’s currently seen coming in 2.5% lower.

Lehman Litigation Webinar; Upcoming Events and Training; New Products

November 18,2018
by admin

Thanksgiving means many things to many people: family time, a half day of work Wednesday, or a four-day weekend. To the staff and students of Johns Hopkins, they are thankful for the gift from Michael Bloomberg, class of 1964, of $1.8 billion (with a “b”). Lenders and their staffs give millions every year to various causes, but beginning in the fall of 2019, Johns Hopkins will be a loan-free institution. “We will replace all undergraduate student loans with scholarships, and we will reduce overall family contributions to financial aid. In addition, for the spring 2019 semester, we will offer immediate loan relief to every enrolled undergraduate student whose financial aid package includes a federal need-based loan.” That is really something.


Upcoming events

James Brody, Chair of Johnston Thomas’s Mortgage Banking Practice Group, is hosting a complimentary webinar at 10:30 AM PST, on Thursday November 29, titled “Lehman Bros. GSE and RMBS Litigation: A Comprehensive Review and Analysis”. Per Mr. Brody, whose firm is representing one of the largest blocks of lender Defendants against the wave of RMBS lawsuits filed by LBHI, the purpose of this complimentary lender only webinar is to provide all his firm’s clients, as well as all those lenders who may be forced to defend against claims made by LBHI, invaluable information on the history of the LBHI litigation, the legal arguments that have been made by the GSE litigants to date, the Bankruptcy Court’s decisions on applicable legal issues and thoughts on various strategies to defend against the GSE/RMBS claims being made by LBHI. In addition, if you were not able to attend and would like to access a complimentary recording of Johnston Thomas’s most recent webinar program, click on “Compliance Tips and Trends: The Resurgence of Marketing Service Agreements, Affinity Relationships, Joint Ventures and Affiliated Businesses”. Questions regarding either of these two programs? Please feel free to contact Mr. Brody directly.

FinTech is reshaping mortgage, which is why Lenders One is investing in exclusive technology like L1 eClosing, unique offerings like the L1 M&A Connector and member programming designed to help lenders compete. There are two upcoming programs exclusively for members focused on arming executives with the tools needed for our changing industry. The executive roundtable December 5-6 in Miami, FL is rooted in developing a strategy and growth plan in a down market with executive coach Gary Peck; a best practice roundtable led by our sponsor Fannie Mae; and a market outlook and business forecasting led by Mike Fratantoni from the MBA. There are less than two weeks to take advantage of early bird pricing for Lenders One’s March 2019 Summit in Austin, TX March 3-6, 2019, which is already seeing a record number of registrants. Contact Lauren Ketchum, Director of Member Experience for more information on these programs or how to become a member.

Register for the MBA/MW Annual Celebration Event on November 28th, 2018 at the VALO PARK in Tyson’s Corner.

HELOC products? The MBA is starting a brand-new study on HELOC and home equity lending and servicing, which will include benchmarking data on portfolio characteristics, utilization rates, draw activity, repayment options, as well as statistics on new commitments such as processing times and pull-through. The study is for MBA members who originate and/or service these products; the participants will help design both the survey instrument and outputs. The initial planning call is on Tuesday, December 11 at 2PM ET. Register for the call here.Download the informational flyer or contact Marina Walsh with questions.

The 2018 NAMB National Conference will be held December 8th-10th at Caesar’s Palace, Las Vegas. Larry King will be speaking, as well as many mortgage luminaries including a session featuring Freedom CEO Stan Middleman and Angelo Mozilo comparing the beginnings of their companies, the evolution of lending, and discussing their thoughts on what the future holds.

On December 11th, industry leaders, Patrick Stone and Ken Markison will discuss the economic and compliance environment in 2019. Register for this Economic and Regulatory webinar here.

October Research, LLC’s annual Economic and Regulatory Outlook webinar is 12/11 at 2PM ET.

Don’t miss registering for the December 15th NMMLA annual Teddy Bear and Blanket Drive luncheon with guest speaker, Mayor Tim Keller.

National MI issued its training for December. A Look Ahead to Social Media Trends 2019: PDT, Dec 13 @ 12-1PM PST. Does your social platform appeal to the borrowers of today? Social media continues to grow as the new storefront for businesses to attract consumers. Join Kristen Messerli, founder of Cultural Outreach, and Managing Editor for Mortgage Women Magazine to discuss 2019 predicted trends and get your social media strategy ready for the New Year! Oh, Shift! Session #3 – Flow: PST, Dec 12, 12-1PM PST, National MI University presents the third webinar in a powerful six-part series. Best-selling author and Executive Coach, Jennifer Powers, MCC’s “Flow” helps you learn how to practice acceptance of people and circumstances so you spend less time in resistance and more time in the state of peace, productivity…and flow…

A Look Ahead to Social Media Trends 2019: PDT, Dec 13, 12-1PM PST. Does your social platform appeal to the borrowers of today? Social media continues to grow as the new storefront for businesses to attract consumers. Today’s customers are highly engaged 24/7 with the popularity of “stories” and live video features. This has created a unique opportunity for lenders to build authentic and transparent voices focused on quality storytelling. Join Kristen Messerli, founder of Cultural Outreach to discuss 2019 predicted trends and get your social media strategy ready for the New Year! Click here: National MI to register for these classes.

The Mortgage Collaborative’s 2019 Winter Conference will take place February 17-19 at the J.W. Marriott in Austin, TX. The interactive agenda will feature over 30 lender led discussion-based educational breakout sessions, a heavy emphasis on peer-to-peer networking and experiences with third parties and exchange of best practices, with a sharp focus on lender growth and efficiency solutions. Visit www.mortgagecollaborative.com or contact TMC COO Rich Swerbinsky.


Capital markets

The U.S. 10-year closed the week yielding 3.07%, steadily making its way back towards 3% throughout the week. Friday’s action was backed in part by comments from Fed Vice Chair Richard Clarida, which not signal big shifts in policy. Instead, he acknowledged that some evidence of a slowdown in the global economy with a potential impact on the United States is becoming visible and that the neutral rate is not far away. Separately, Chicago Fed President Charles Evans said that hiking the fed funds rate to “about 3.25%” is reasonable, given the economic outlook, which implies four more rate hikes.

This Thanksgiving week sees markets closed on Thursday with an early close on Friday and a de facto one on Wednesday for much of the Street. The economic calendar is also light and front loaded with updates on housing, durable goods, and Michigan sentiment with Markit PMIs on Friday. Today’s calendar includes the NAHB Housing Market Index for November at 7AM PT, expected to decline slightly. Tomorrow we receive October Housing Starts and Building Permits before a heavy slate of releases Wednesday, headlined by October Durable goods and October Existing Home Sales. The week begins with the 10-year yielding 3.08% and agency MBS prices are worse .125 versus Friday’s close.


Lender products and services

“With the recent run-up in home values, we’ve noticed increased interest in HELOC functionality. Accordingly, there’s been introductions of a ‘new’ HELOC functionality by some high-profile software providers. While others are just introducing their functionality,

MortgageFlex Systems has been providing HELOC support for 20 years. MortgageFlex is live with a HELOC only lender and results show major operational efficiencies. ‘MortgageFlexONE, LOS supports first mortgages plus open and close-end seconds,’ Craig Bechtle, COO of MortgageFlex Systems said. ‘Additional modules expand the functionality of the LOS. We also support construction loans, chattel loans, manufactured home lending, and consumer lending in one platform.’ With increased emphasis on cost containment and loan quality, MortgageFlex has been building an efficient LOS. With MortgageFlexONE you get more higher quality loans per user. You don’t need two or three origination systems anymore. Expand your capabilities in one decision.

Since going live on Loan Vision in 2016, Guild Mortgage Company has streamlined accounting processes despite increased volumes brought on through significant growth. Lindsay Vaught, Controller at Guild Mortgage shared, “Business has gotten much more complex with our growth. The fact that we’re closing in the same number of days as we were, but being much larger and more complex, says something. We’re doing things faster and more efficiently.” For more information read the case study about how Guild Mortgage’s growth continues to be supported by Loan Vision or contact Carl Wooloff.

Stearns Wholesale Lending delivers the best customer service to America’s best. In recognition of everything our military members and their families have sacrificed for our country, Stearns Wholesale will waive the Stearns Administration/Underwriting fee throughout November. Committed to making it easy for brokers to grow their business, while also supporting our nation’s veterans, the fee waiver will apply to VA loans registered between November 5th through November 30, 2018. The state admin fee will be waived in our easy-to-use app, SNAP 2.0.For more information, contact wholesaleleadership@stearns.com.

Sierra Pacific Mortgage continues to provide financing solutions for the purchase and refinance markets in Retail, Wholesale and Correspondent lending. We have all heard the phrase, “This home has good bones.” It’s a common expression in the housing industry, one that means a home needs a little TLC. With that in mind, Sierra Pacific has a dedicated renovation Department, who concentrates in providing renovation home loan options, including the FHA 203(k) Limited and Standard products and Fannie Mae’s HomeStyle products. According to a recent MetroStudy, more than 12 million home remodeling projects will be completed by the end of 2018. Want to grow your business? Then reach out to your Sierra Pacific contact to learn more about how renovation loans can help your purchase and refinance business grow.

“Lenders, are you spending a ton on vital, heavy LOS/PPE or fancy new tech that doesn’t gain you more volume or magically pay your bills? ReadyPrice can really help by slashing your operating costs. The ReadyPrice enterprise-strength LOS with an embedded multi-investor PPE and proprietary error trapping tech is the answer for all market conditions. The ReadyPrice all-in-one retail AND wholesale platforms are fully configured out of the box, are up to 75% less expensive than heavy, ‘mature’ competitors, come complete with D1C & deep Fannie DU integrations and can be stood-up in a couple of weeks. Or, you can easily customize / configure her. The ReadyPrice LOS/PPE has funded over 300k units for $70 billion and is leading the way forward for today’s mortgage bankers. Call (408) 357-0931 or email hello@readyprice.com to receive a free demo today.”


Jobs and Personnel Moves

“While many in the mortgage industry have been struggling, Prime Choice Funding, Inc. has been experiencing exponential growth and is looking to expand nationwide. PCF is a national leader in mortgage lending and provides loan officers with competitive compensation, top-tier fulfillment and paid marketing that drives business growth and offers a variety of loan programs to fit any situation: FHA, VA, Conventional, Jumbo, Non-QM, Reverse, Reno and much more! If you’re interested in joining our team or want more information, visit Join PCF or contact Keith McKay at 714-263-1660.”

Gateway Mortgage Group continues to break records, win awards, and open new offices. The company recently announced that it has experienced continued growth in the third quarter, opening 12 new offices in eight states and adding 161 jobs. Gateway funded a total of $1.768 billion in the third quarter of 2018, compared to $1.536 billion during the same period in 2017. The company expects to originate $6 billion in new mortgages while its servicing portfolio should eclipse $20 billion by year’s end. In a recent press release, Stephen Curry (CEO) attributes the success to a “depth of talent in our team nationally,” and “their relationships in local markets.” See the full press release here. In addition to the continued growth, Gateway was also recognized as a Hall of Fame Honoree with its 8th time on the Inc. 5000 List and was again named a Center of Excellence by Benchmark Portal. Visit www.GatewayLoan.com for more information.

In retail news, Atlantic Bay Mortgage Group is continuing its expansion throughout the Southeast. Atlantic Bay, headquartered in Virginia Beach, is looking for growth-oriented brokerage companies, high performing mortgage teams, and companies with less than $500 million in sales who want to focus on production by removing obstacles to growth. Brokers who join Atlantic Bay experience growth rates in their personal production from 50 – 80 percent. Direct access to underwriting, secondary support, and realtor-focused marketing have all been drivers for increased growth. Two popular benefits of the Atlantic Bay way are simplicity in the compliance process and a mortgage banker assistant program. Atlantic Bay places great importance on culture, loving where you work, and giving back to the communities it serves. Email Justin Caplan to find out more about working at Atlantic Bay.

Congrats to Rhiannon Bolen whom Mortgage Capital Trading, Inc. (MCT) announced has joined the company’s sales team as one of its Regional Sales Managers and will be responsible for overseeing the Southern territory.

After a Steady Run, Builder Confidence Finally Folds

November 18,2018
by admin

Builder confidence took a steep dive this month, reflecting increasing news of slowing home sales and rising concerns over affordability. The National Association of Home Builders (NAHB) said its Housing Market Index (HMI), a joint project of NAHB and Wells Fargo, dropped eight points. The index, which has been floating in the 67 to 70 range since March, had a November level of 60, the lowest since July 2016.

NAHB Chairman Randy Noel said, “Builders report that they continue to see signs of consumer demand for new homes but that customers are taking a pause due to concerns over rising interest rates and home prices.”

“For the past several years, shortages of labor and lots along with rising regulatory costs have led to a slow recovery in single-family construction,” said NAHB Chief Economist Robert Dietz. “While home price growth accommodated increasing construction costs during this period, rising mortgage interest rates in recent months coupled with the cumulative run-up in pricing has caused housing demand to stall.”

With the prospect of future interest rate hikes in store, Dietz said that builders have adopted a more cautious approach to market conditions and urged policymakers to take note. “Recent policy statements on economic conditions have lacked commentary on housing, even as housing affordability has hit a 10-year low,” said Dietz. “Given that housing leads the economy, policymakers need to focus more on residential market conditions.”

NAHB conducts a monthly survey among its new home builder members which asks them to express their perceptions of current single-family home sales and their expectations for those sales over the next six months as “good,” “fair” or “poor.” Builders are also asked to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor. NAHB stressed that, despite the sharp drop, the survey’s outcome remains in positive territory.

All of the major HMI indices posted declines. The index measuring current sales conditions fell seven points to 67, the component gauging expectations in the next six months dropped 10 points to 65 and the metric charting buyer traffic registered an eight-point drop to 45.

Regional results are presented as three-month moving averages. The Northeast rose two points to 58. The Midwest edged one point lower to 57, the South declined two points to 68 and the West dropped three points to 71.

MBS RECAP: New Fed Vice Chair Helps Rates and Stocks

November 16,2018
by admin

We haven’t heard much out of new Fed Vice Chair Richard Clarida since he accepted the position, but what we heard today was good. Well, at least the bond market reaction was good. His comments ended up setting the tone for the day.

So what did he say? Nothing too complicated… Whereas Fed Pres Bostic was talking about a “neutral rate” of 2.5-3.5 yesterday, Clarida said we’re close to a neutral range NOW. That certainly seemed to be the biggest deal among his comments, but it was perhaps just as significant that he noted evidence of global economic slowing.

Stocks and bonds both rallied from there on out. The fact that the shorter end of the yield curve led the charge was especially telling (that’s where we’d expect to see a bond market rally driven by shifts in Fed rate hike expectations).

The week ended with 10yr yields at a key technical level (3.075% at the 3pm close). The next major technical is arguably 3.00%. Fannie 4.0 MBS gained more than a quarter point to end in line with their best levels since early October.

New Home Sales, Prices Faded in October

November 15,2018
by admin

The Mortgage Bankers Association (MBA) notes that applications for the purchase of new homes declined by 2.1 percent in October compared to the same month in 2017. Those applications were also 11 percent lower than in September. The information, taken from responses to MBA’s Builder Application Survey, does not include any adjustment for seasonal patterns.

Based on the survey results and other assumptions including about market coverage, MBA estimates that new single-family home sales were at a seasonally adjusted rate of 673,000 in October, an increase of 4.7 percent from the September sales rate of 643,000 units. On an unadjusted basis, the MBA projects 53,000 new home sales occurred during the month, up by 6 percent from 50,000 sales in September.

Conventional loan applications accounted for 70.9 percent of the total, FHA loans comprised 17.1 percent, VA applications 11.2 percent, and RHS/USDA applications made up 0.7 percent. The average loan size of new homes decreased from $333,086 in September to $331,732 in October.

Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting said, “While we have seen some monthly swings in new home sales in 2018, the year-to-date average sales pace is around seven percent higher than the same period in 2017. Additionally, the average loan size for a new home purchase application, at around $332,000, was at its lowest since July 2017. This is potentially a sign that there has been some additional inventory in the new home market, and that the rapid price growth in some geographies is starting to ease.”

MBA’s Builder Application Survey tracks application volume from mortgage subsidiaries of home builders across the country. Official new home sales estimates are conducted by the Census Bureau on a monthly basis. In that data, new home sales are recorded at contract signing, which is typically coincident with the mortgage application. October new home sales will be reported on Wednesday, November 28.

Mortgage Rates Lowest in a Month

November 15,2018
by admin

Mortgage rates hit their lowest levels of THE month yesterday, and the lowest levels in A month today. It’s a bit of a technicality, really. As of yesterday, there were a few days in mid-to-late October that saw lower rates. Today’s drop means we’d need to go back to early October to see anything lower.

What’s the significance of being at the lowest levels in a month? None, really. It’s just really fun to be able to say such things in an environment where such things haven’t been easily said for quite some time! Perhaps more relevant and more tangible is the fact that we can say rates are nearly an eighth of a percentage point lower on the week, and that’s a decent move regardless of the environment.

Next week brings the Thanksgiving holiday, which tends to make mortgage lenders set rates more conservatively (secondary mortgage market is much less active than normal, starting on Wednesday afternoon). As such, gains of this size are certainly worth considering from a lock/float standpoint. In terms of tactical improvements amidst the broader trend toward higher rates, this is about as good as we’ve seen.



Loan Originator Perspective

Bonds enjoyed a green week, posting gains (minimal or not) all 5 days. Treasury yields are nearing early October lows, but the improvements aren’t fully reflected on my rate sheets yet. I’ll float new applications till Monday, for clients with a modicum of risk tolerance. –Ted Rood, Senior Originator


Today’s Most Prevalent Rates

  • 30YR FIXED – 5.0%
  • FHA/VA – 4.5%-4.75%
  • 15 YEAR FIXED – 4.5%-4.625%
  • 5 YEAR ARMS – 4.375%-4.875% depending on the lender



Ongoing Lock/Float Considerations

  • Rates continue coping with several big-picture headwinds, including: the Fed’s rate hike outlook (and general policy tightening), the increased amount of Treasury issuance to pay for the tax bill (higher bond issuance = higher rates), and the possibility that fiscal stimulus results in higher growth/inflation (which certainly seems to be the case so far in 2018).

  • While rates were able to recover and stay sideways in the summer months, September and October have seen a surge up to the highest levels in more than 7 years.

  • Upward pressure can continue as long as economic growth and inflation continue running near long-term highs. Stay defensive (i.e. generally more lock-biased). It will take a big change in economic fundamentals or geopolitical risk for the big picture to change. Such things tend to not happen as quickly as we’d like.
  • Rates discussed refer to the most frequently-quoted, conforming, conventional 30yr fixed rate for top tier borrowers among average to well-priced lenders. The rates generally assume little-to-no origination or discount except as noted when applicable. Rates appearing on this page are “effective rates” that take day-to-day changes in upfront costs into consideration.

MBS Day Ahead: Bonds Already Commuting for Thanksgiving?

November 15,2018
by admin

Because November 1st was a Thursday, we’ll be treated to the earliest possible iteration of Thanksgiving. It’s next week, by the way! Why are we talking about such things with respect to financial markets? Simply put, the winter holidays definitely have an impact. The catch is that the these impacts vary, and their timing is uncertain with respect to Thanksgiving (as opposed to late December, when it’s always going to be the last 2 weeks of the month followed by the first week of January.

What sort of patterns do we see shaping up? Oftentimes, it’s simply a consolidation. In other words, yields/prices are in the process of making higher lows and lower highs. Sometimes there’s a breakout well before the end of the year, but there are rarely breakouts in late November. The previous statement assumes that a consolidation was already forming. In cases where a trend was well underway, it can simply remain underway right through Thanksgiving.

In the current case, we actually don’t have a trend well underway. As we’ve discussed in recent days, there’s a potential consolidation pattern shaping up. Thanksgiving precedent suggests we think really hard about defending against a bounce here. The caveat is that there is a certain amount of drama in stocks or from Brexit-related headlines that COULD lead to a break of this consolidation pattern, but we’ll cross that bridge when and if we come to it.

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