Mortgage Rates



Very early this morning the 10 yr traded unchanged but as the clock ticked some buying in the bond and mortgage markets with the stock indexes holding steady. At 9:00 the 10 yr at 1.90% +4/32, mortgage prices +3/32 (.09 bp). 1.90% on the 10 yr represents resistance based on past performance; the 10 has found difficulty at that level since last October. Only 10 days since then has the 10 traded below 1.90%.

For the first time since the start of 2008, bonds were the only investments to provide positive returns amid renewed concern the global economy is slowing and as widening deficits in Europe threaten contagion. Investors sought the perceived safety of fixed-income investments after U.S. job growth in March failed to meet economists’ forecasts and amid growing concerns that European leaders will fail to manage their debt loads. Austerity forced on governments in Europe is deepening the recession in the region. It forced Italy to delay its goal of balancing the budget by one year to 2014, joining Spain in missing fiscal targets amid a worsening recession. The IMF said in a recent report that the world economy will expand 3.5% this year, down from 3.9% in 2011, as growth in Europe shrinks 0.3%.

Everything looks positive for the US interest rate markets at the moment but most economists surveyed are forecasting the 10 yr note yield will be at 2.25% by the end of June; if they are correct, which can be debated, the mortgage market is at or close to its best levels for months to follow. Regardless of the forecasts, the present level of interest rates remains the best in 60 years. We hear a lot of talk that potential buyers of homes or those wanting to re-finance are waiting for rates to fall more. While anything in this climate is possible, the likelihood of substantially lower mortgage rates is remote. Mainly because at some point at these levels investors will realize that investing in very low interest rates is difficult to justify. The support in bonds now is two-fold; safety as Europe could blow up at any time and what looks like a decline in stocks is increasingly likely.

At 9:30 the DJIA opened generally unchanged from yesterday’s close ahead of the key ISM data and construction spending. The 10 yr +3/32 1.91% -.5 bp; mortgage prices +2/32 (.06 bp).

At 10:00 the April ISM manufacturing index was expected at 53.0 frm 53.4. The index jumped to 54.8 countering the various regional data frm Fed regions; employment increased to 57.3 frm 56.1, new orders increased to 58.2 frm 54.5 and prices pd was unchanged at 61.0. A minute before the 10:00 release the 10 yr note traded briefly at 1.90%, at 10:05 at 1.93% down 3/32 with mortgage prices -2/32 (.09 bp) and down 4/32 (.12 bp) frm 9:30. The key stock indexes were flat prior to the report, now up and improving. March construction spending didn’t meet forecasts, up 0.1% against estimates of +0.5%; residential construction up 0.7% after declining 2.2% in Feb. Government spending was weaker dragging spending lower, construction spending.

Earlier this morning two retail sales reports; Redbook's year-on-year rate is showing its steepest slowdown since early in the year, at plus 2.9% in the April 28 week with the four-week average down four tenths to plus 3.2%. But the downdraft reflects comparison distortions tied to the Easter shift, and a look at March and April together comes out to plus 3.4% which shows acceleration compared to plus 2.9% in February and plus 2.7% in January. The second report focuses on weather; cool temperatures and heavy weather through much of the country cut into store sales during the April 28 week, according to ICSC-Goldman whose same-store index slipped 0.3% in the week. Yet ICSC-Goldman's year-on-year rate remains firm, up six tenths to plus 4.2%. The four-week average is at plus 3.9% for the best rate since early in the year. Consumers still out there spending, although not heavily but with gasoline prices high we see the two reports as decent news.

April auto and truck sales are out through the day; expectations are for sales to have been up, some say as much as 10%.

So far this morning the 10 yr tested 1.90% and again failed to break it. At 10:10 1.94% +2 bp. The remainder of the day will be directed by how the stock market goes. Up a little on the 10:00 data but stalling out for the moment.