Daily Commentary by Larry Baer 4.4.2013

Daily Commentary by Larry Baer:  The number of Americans filing first-time claims for government unemployment benefits hit a four-month high during the week ended March 30^th. 

Initial jobless claims increased 28,000 to a seasonally adjusted 385,000, the highest level since November of 2012.  It was the third straight week of gains for jobless claims - confounding economists' consensus forecast calling for a drop to 350,000.   The outsized jump in jobless claims should be taken with a grain of salt - since new filings this time of year are volatile because of holidays and the timing of school spring breaks.  From a historical perspective new filings have risen in the week including Good Friday over the past several years.  Therefore, I don't think we ought to read too much into this week's report.  The trend trajectory of the weekly initial claims data over the next three or four weeks will be much more telling.

Be aware today's jobless claims reporting period fell outside of the survey time frame for tomorrow morning's much more important March nonfarm payroll report.  Even so, many analysts have been busy marking down their March nonfarm payroll projections - with most now expecting the economy probably created 195,000 net new jobs last month -- and a few even suggesting the national jobless rate may have ticked up to 7.8% from last month's 7.7% level.

This morning's rally in the mortgage market reflects mortgage investors' overall expectations for a softer-than-expect March employment report.  In order for the rally to continue tomorrow the March labor story will have to deteriorate significantly below investors reduced expectations. While such an outcome is certainly possible - it is not very probable.  The greater risk in my opinion is that tomorrow's headline employment number comes in at 200,000 or more and the jobless rate hits 7.7% or less.  Numbers like these would likely induce a round of profit-taking among mortgage investors strong enough to reduce or completely eliminate today's price gains.

The easiest way to make money in this business is not to loose it to start with.  Have a plan - and be prepared to unhesitantly execute it.

THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME

Daily Commentary by Larry Baer 4.3.2013

Daily Commentary by Larry Baer:  The mortgage market is showing some slight improvement this morning after the March reading of the Institute of Supply Management's Service Sector Index came in weaker than expected.  The ISM's service sector index posted a value of 54.5 versus 56.0 in February -- and well below the consensus forecast calling for a reading of 55.8.  The report's employment component, closely watched ahead of Friday's March nonfarm payroll report, fell to a reading of 53.3 form the previous month's mark of 57.2.  The employment component has not been lower since November of last year.

Earlier, the ADP National Employment Report said private sector employment rose by 158,000 jobs in March - well below consensus estimate among economists calling for an employment gain of 200,000. 

The collective data suggests the economy may be finding it harder-than-expected to post notable growth in the face of across-the-board cuts in the federal budget - a condition, should it persist, almost sure to add support to the prospects for steady to perhaps fractionally lower mortgage interest rates ahead.

The Mortgage Bankers of America reported earlier this morning that their Mortgage Application Survey composite index for the week ended March 29^th fell by 4%.  Though purchase activity marginally improved, a 5.6% slump in refinance demand weighed on the overall measure.  On a four-week moving average basis, refinance activity has retreated by 1% over the past month, but is higher by 18% from one year ago.  Purchase applications have increased by 5.5% over the past month and have advanced by a little more than 7.0% from the year earlier mark.

For the week ended March 29^th, refinance applications accounted for 74% of all loan applications and 68% of the perspective loan volume.

During the week the contract rate for 30-year fixed-rate conforming mortgages decreased by 3 basis-points to 3.76%.  The interest rate is 6 basis-points higher from four-weeks ago, but 40 basis-points lower from one year earlier.

THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME

Daily Commentary by Larry Baer 4.2.2013

Daily Commentary by Larry Baer:  The mortgage market is drifting listlessly this morning with investors choosing to take a cautious stance in front of Friday's March nonfarm payroll report and next week's three-part Treasury debt auction featuring 3- and 10-year notes and 30-year bonds. 

As expected, today's February Factory Orders report drew nothing more than a passing glance from mortgage investors.  The Commerce Department said orders for manufactured goods climbed 3.0% in February - driven almost exclusively by a 95.1% surge in civilian aircraft demand.  Gains in new orders were modest when volatile categories like transportation are stripped out.  Orders excluding transportation equipment increased a very modest 0.3%. 

For what it is worth - Fannie Mae announced earlier today it posted a $17.2 billion annual profit for 2012, its largest ever yearly gain and its first profit in six years.  To put Fannie Mae's 2012 financial performance in a little sharper perspective - the company posted a year-earlier loss of $16.9 billion.   In case you are wondering, last month Freddie Mac posted an $11 billion record profit for 2012.

Fannie Mae has now paid back about $35.6 billion in dividends to the Treasury against the $116 billion it borrowed from the American taxpayers.  For its part Freddie Mac has paid back $23.8 billion of the $71.3 billion it borrowed from the government to stay afloat.   

As a reader of this commentary you no doubt played at least a small part in the success these two entities achieved last year - and so to each of you on behalf of all taxpayers I say - congratulations on a job well done - keep up the good work.     

THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME

Daily Commentary by Larry Baer 3.28.2013

Daily Commentary by Larry Baer:  Most mortgage investors have already put the finishing touches on their risk management positions as time ticks down to today's early market close at 2:00 p.m. ET. 

The Treasury Department will wrap-up this week's three-part debt auction when the final gavel falls on $29 billion of 7-year notes at 11:30 a.m. ET today.  Today's offering is broadly expected to draw a mediocre bid.  If so, this event will likely have little noticeable impact on the current trend of mortgage interest rates.

Earlier this morning the Labor Department reported the number of Americans standing in line to file for first-time government unemployment benefits rose by an unexpected 16,000 to a seasonally adjusted 357,000.  Jobless claims have risen for the past two weeks, but given their volatility, it is too soon to conclude the job market is showing signs of deteriorating.  Mortgage investors yawned.

In a separate report the Commerce Department said their final "guesstimate" of the pace of economic growth during the fourth-quarter of 2012 improved by 0.4% over third-quarter levels.  The growth rate was the slowest since the first-quarter of 2011 and far from what is needed to fuel a faster drop in the unemployment rate.  It was, however, higher than the government's previous estimate of a 0.1% growth rate.  Much of the weakness came from a slowdown in inventory accumulation and a sharp drop in military spending -- factors that had already been anticipated.  The data had no material affect on the direction of mortgage interest rates today.

Looking ahead to next week -- Monday's March Institute of Supply Management report will be the highlight of a slow start to the week - but things will really heat up on Friday with the release of the March Nonfarm Payroll figures.  The consensus forecast among economists is currently projecting the nation's employers added 197,000 new jobs during the month of March while the national jobless rate held steady at 7.7%.  If the actual numbers match or closely approximate the forecast - mortgage interest rates will not likely move much.  In the unlikely event the headline number shows a gain of 205,000 jobs or more -- and/or the national jobless rate drops to 7.6% or less -- expect mortgage interest rates to move notably higher before the end of the day.

THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME

Daily Commentary by Larry Baer 3.27.2013

Daily Commentary by Larry Baer:  Mortgage interest rates got a nice little bump to lower levels this morning as global investors flocked into the safe haven of U.S. dollar denominated assets like Treasury debt obligations and agency eligible mortgage-backed securities.  Fear that bank problems in Cyprus may prove contagious to other financially weak euro zone countries like Italy and Spain ignited the new round of "flight-to-quality" buying.  Europe is a lingering threat with the fragility of its banking systems and U.S. dollar denominated debt instruments are one of the major tools available to global investors to mitigate part of that risk.

In the face of this morning's reaction to renewed banking woes in Europe -- expectations are high today's Treasury Department auction of $35 billion of 5-year notes will be well bid.  If so, the event will tend to support prospects for steady to perhaps fractionally lower mortgage interest rates.  The auction will conclude at 1:00 p.m. ET and I'll post results on my website as soon as possible thereafter.

As they do every Wednesday, the Mortgage Bankers of America have released their Mortgage Application Survey for the week ended March 22^nd.  The refinance index gained 8.0%, while purchase activity advanced by 6.7%.

Refinance activity has improved 2.8% over the past four weeks and is higher by 17% from year ago levels.  Purchase applications have increased by 4.4% over the past four weeks and have advanced by 11% from a year earlier.

During the week, the contract rate for 30-year fixed-rate conforming mortgages decreased by 3 basis points to 3.79%.  The interest rate is 2 basis-points higher from four weeks ago but 44 basis-points lower from a year ago.

THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME