Daily Commentary by Larry Baer 1.31.2011

Commentary: Protests to the end the 30-year rule of Egyptian President Mubarak continued over the weekend. Egypt's importance to the global economy is relatively small, but its importance to the transportation of oil from other parts of the Middle East is huge.

While investors appear to be attentive to the ever changing dimensions of this event - there is currently no panic. If the Egyptian crisis were to spread to other countries in the region -- or if the flow of oil through the Suez Canal were to be impeded -- things could change in a blink-of-an-eye.

I'm unsure how much the safe-haven appeal of dollar denominated assets like Treasury obligations and mortgage-backed securities would be overshadowed by the rising inflation pressures created by the almost certain massive surge in energy prices should civil war breakout in the region. My hope is that such a scenario proves to be nothing more than a fleeting "what if" question. If such an event were to actually manifest itself, I strongly suspect investors would opt for cash and near-cash (Treasury obligations of 1-year or less) rather than expose their capital to longer-term investments and the attendant financially corrosive power of rising inflation. That's not a story that would be supportive of the prospects for steady to perhaps fractionally lower mortgage interest rates longer-term.

Mortgage investors shrugged-off this morning's report from the Commerce Department indicating consumer spending rose by 0.7% last month. The details of the December personal income and spending report showed that much of the surge in consumer spending came from a notable drawdown in household savings accounts as personal incomes grew a very modest 0.4% during the period. In addition, the renewal of special and extended government unemployment insurance benefits last month put money in the hands of consumers likely to spend it. So while some "talking heads" are harping about the big surge in consumer spending -- most mortgage investors largely discounted the whole thing - especially since the personal consumption expenditure index component of the report, the Fed's preferred measure of inflation at the consumer level, was unchanged in December after edging up 0.1% in November.

Yet to come this week -- Tuesday and Thursday will be dominated by the Institute of Supply Management's reports of activity in the manufacturing and service sectors of the economy to be followed by the release of the January nonfarm payroll figures on Friday morning. The reports scattered through the earlier part of the week are expected to be generally mortgage market neutral and will therefore be overshadowed by the jobs number on Friday. As I write most analysts anticipate the economy created 150,000 more jobs in January than were lost while the national jobless rate is expected to tick up to 9.5% from December's 9.4%. Numbers that match or fall below these projections will tend to be supportive of steady to perhaps fractionally lower mortgage interest rates. In the unlikely case the actual numbers are stronger than currently projected look for your investors to push mortgage rates higher.

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

Daily Commentary by Larry Baer 1.28.2011

Commentary: The mortgage market stumbled out of the gates a little bit this morning as investors reacted to the first estimate of the economy's overall growth rate during the last three months of 2010.

The headline Q4 Gross Domestic Product number posted a gain of 3.2% -- slightly below most economists' expectations for a reading of 3.5%. The devil was in the details - especially the detail that showed consumer spending had its biggest gain in four years.

Less experienced traders were quick to latch onto this seemingly super-strong measure of economic growth and they aggressively pushed mortgage interest rates higher in the day's early trading. After letting them have their fun for a little while -- more experienced traders moved in with their substantial financial firepower and turned the trading activity in the mortgage market completely around.

Numbers can be deceiving - especially if one fails to consider the broader view. More experienced traders were already watchfully aware that much of the driving force behind the surge in consumer spending last year resulted from heavy price discounting by retailers. The national consumer income numbers show households chose to dip into their savings to buy the offered goods and services at their "blue light" and "one-time only" special price.

The fourth quarter employment cost index (released earlier this morning as well) showed wage and salary growth eked upward by a mere 0.4%. Extremely high joblessness, along with dim prospects for wage growth, will by necessity cause households to hold spending in check as we move into 2011.

More experienced traders are aware that the improvement in the economy that all the media "talking heads" are so breathlessly reporting this morning was not driven by real growth from the consumer - but rather by all the fiscal and monetary stimulus provided by the government in the form of more than $2 trillion dollars of direct debt purchases by the Fed -- and the dynamics of multiple tax cuts present and future. Once the government contribution is removed from the equation -- economic growth will not likely be nearly as robust as it now appears. That is probably bad news in terms of any notable acceleration in mortgage loan demand through at least mid-year -- but good news in terms of the prospects for steady to fractionally lower mortgage interest rates.

Next week will be a busy week in terms of economic data to be released. Mortgage investors will get a look at the pace of inflation at the consumer level contained in Monday's December Personal Income and Spending report. Tuesday and Thursday will be dominated by the Institute of Supply Management's reports of activity in the manufacturing and service sectors of the economy. The week will round-out with the release of the January nonfarm payroll figures on Friday morning. The reports scattered through the earlier part of the week are expected to be generally mortgage market neutral and will therefore be overshadowed by the jobs number on Friday. As I write most analysts anticipate the economy created 150,000 more jobs in January than were lost while the national jobless rate is expected to tick up to 9.5% from December's 9.4%. Numbers that match or fall below these projections will tend to be supportive of steady to perhaps fractionally lower mortgage interest rates. In the unlikely case the actual numbers are stronger than currently projected look for your investors to push mortgage rates higher.

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

Daily Commentary by Larry Baer 1.27.2011

Commentary: The Treasury Department will sell $29 billion of 7-year notes at 1:00 p.m. ET today.

There is a chance this sale will be the strongest of three-offerings the Treasury Department put on the auction-block this week (compared to Tuesday's 2-year notes and yesterday's 5-year notes).

Portfolio managers who align their investment funds with benchmark indexes often have to make last-minute adjustments to the average maturity of their holdings at the end of each month. Seven-year notes are always the last Treasury notes sold at the end of the month, so they work as a quick fix for managers who need to do a little tweaking to their positions.

The Fed is also expected to be a buyer at today's auction - spending $5 to $10 billion of the roughly $300 billion they have left of their original "QE2" checking account balance ($600 billion in case you don't recall).

A well bid 7-year note auction would likely prove very supportive for the prospects of steady to perhaps fractionally lower mortgage interest - at least between today and the release of next week Friday's January nonfarm payroll figures. I'll provide the 7-year Treasury note auction result on my website as soon as possible once the final gavel falls.

In other news of the day, the Labor Department reported the number of Americans filing first-time claims for unemployment benefits rose by a surprising 51,000 during the week ended January 22^nd. Mortgage investors largely shrugged this outsized gain off - reasoning that harsh weather conditions in some parts of the country kept workers at home and caused a backlog in the processing of claims from prior weeks. The latest jump in the initial weekly jobless claims number does not have any implications for next week's larger and more important nonfarm payroll report -- as this week's initial jobless claims data fell outside the more meaningful report's survey period.

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

Wednesday Market Update Video 1.26.2011

Mortgage interest rates are up slightly this week from last week. Click Here to view today's Wednesday Market Update.

Daily Commentary by Larry Baer 1.26.2011

Commentary: The Treasury Department will sell $35 billion of 5-year notes at 1:00 p.m. ET today. It will be their second of three auctions scheduled for the week.

A little more than an hour later at 2:15 p.m. ET the Federal Open Market Committee will end its two-day January meeting and release a statement on the economy and monetary policy.

The timing of the release of the Fed's post meeting statement may dampen demand for the 5-year notes. If so, it will be difficult if not impossible for mortgage interest rates to make much headway toward lower levels. In order to be supportive of the prospects for lower mortgage interest rates -- the Fed's post-meeting statement will need to sound cautious in terms of both the sustainability of recent indications of accelerating economic activity and the improving labor market story.

If the Fed leans too far in the direction of seeing the economic glass as half-empty, they will appear out-of-touch with reality and their creditability with credit market participants will slip (yet lower). On the other hand, if the Fed presents a more upbeat view of the economy and job creation together with a view that core inflation pressures will likely begin to tick higher -- mortgage investors will almost certainly feel compelled to push rates higher. The Fed's wordsmiths have their job cut out for them. If they fail today's "finesse-test" - you can bet the impact on your rate sheets won't be pretty.

I'll provide the 5-year note auction results and a summation of the Fed's post-meeting statement on my website as quick as possible following the conclusion of each event.

The Mortgage Bankers of America have released the details of the Mortgage Application Survey for the week ended January 21^st. Overall application activity dropped 12.9% on a week-over-week basis. Refinance requests declined by 15.3% while loan request for purchase money was down 8.7%. The average contract rate for 30-year fixed rate mortgages finished down 4.8%, up by 3 basis points from the prior week, down by 13 basis points from four weeks ago, and down by 22 basis points from the year ago level. According to the MBA seven out of every ten loan applications taken last week were for mortgage refinance.

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

Daily Commentary by Larry Baer 1.25.2011

Commentary: The Treasury Department is set to auction a $35 billion stack of two-year notes today. It will be the first of a series of three auctions scheduled for the week. Today's event will conclude at 1:00 p.m. ET and I'll post the auction results on my website as soon as possible once the final gavel falls.

The two-year note has drawn generally solid demand at auctions over the past two years, and most observers expect today's event will also be well bid. If so, look for mortgage interest rates to remain essentially unchanged for the day. In the unlikely event this offering requires Uncle Sam to "sweeten-the-pot" by pushing the yield on the 2-year note higher - expect mortgage interest rates to move higher as well.

Earlier this morning the Conference Board (a private, non-profit organization that compiles and produces leading economic indicators for its clients) said consumer confidence rose more than expected in January to its highest level in eight months. The Conference Board said its index of consumer attitudes jumped to 60.6% in January from an upwardly revised 53.3% in December. Consumers rated business and labor market conditions more favorably and expressed greater confidence that the economy will continue to expand and generate more jobs in the months ahead. Mortgage investors are typically far more interested in what consumers are actually doing - rather than how they say they are feeling. Even so, the outsized spike in January consumer confidence created a bit of a headwind as mortgage interest rates took a stab at moving fractionally lower in today's early going.

In my opinion, the "wild card" event of the week will be President Obama's State of the Union address -- scheduled for 9:00 p.m. ET this evening. Credit market participants will be listening intently for clues as to whether the President appears willing to strike a deal with Republicans to cut spending in exchange for a national debt limit increase. The "so what" factor here is straightforward.

As of January 20^th, the national debt stood at $14.004 trillion, just 290 billion below the congressionally mandated limit. The Treasury has estimated that based on recent spending and revenue trends, the government will run out of funding authority as early as March 31^st. If the debt limit is not extended -- the government will not have the funding capacity to run its day-to-day operations -- which includes paying interest on money it already owes to its debt holders.

Without an extension of the debt ceiling -- not only will many government offices be shutdown - the U.S. would be very vulnerable to suffering a heavy round of punishment delivered by its debt holders in the form of sharply higher interest rates - a condition, should it develop, that will undoubtedly push mortgage interest rates higher. The good news is that there is little sign in the credit markets right now that investors are deeply concerned about this potential issue. Depending how the political rhetoric surrounding this issue develops -- market participants' current halfhearted and/or dismissive attitude toward this matter could change in the blink-of-an-eye. Heads up.

The balance of the week's economic reports include December New Home Sales on Wednesday, initial weekly jobless claims and December Durable Goods Orders on Thursday and on Friday market participants will get a look at the first estimate of the pace of economic growth in the last-quarter of 2010 (as measured by Gross Domestic Product). These reports will add a little empirical evidence to support the broad opinion of most credit market participants that the economic recovery from the worst slump since the Great Depression gained a little momentum as the previous year drew to a close. This is a view that has already been well priced into the mortgage market - so further upward adjustments to mortgage interest rates as a direct result of this week's battery of economic reports will likely be small - if they occur at all.

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

Daily Commentary by Larry Baer 1.24.2011

Commentary: Credit market participants are rearranging their portfolios just a bit this morning to make room to accommodate the Treasury Department's three-part, $99 billion note sale.

The Treasury will sell $35 billion of two-year notes on Tuesday, $35 billion of five-year notes on Wednesday and $29 billion of seven-year notes on Thursday. In recent weeks the yield on each of these three debt instruments has moved toward the top of their respective trading range - a condition that should help attract underinvested players. The Fed has plans to buy a total of $29 billion of government debt obligations this week as part of their "QE2" stimulus program which should help to stabilize the bidding at the debt auctions as well. Well bid Treasury auctions will tend to be supportive of steady to perhaps fractionally lower mortgage interest rates while poorly bid auctions are almost sure to push note interest rates higher. The final gavel will fall at 1:00 p.m. ET for each of these offerings and I will post results as quick as possible thereafter.

In my opinion, the "wild card" event of the week will be President Obama's State of the Union address tomorrow evening. Credit market participants will be listening intently for clues as to whether the President appears willing to strike a deal with Republicans to cut spending in exchange for a national debt limit increase. The "so what" factor here is straightforward.

As of January 20^th, the national debt stood at $14.004 trillion, just 290 billion below the congressionally mandated limit. The Treasury has estimated that based on recent spending and revenue trends, the government will run out of funding authority as early as March 31^st. If the debt limit is not extended -- the government will not have the funding capacity to run its day-to-day operations -- which includes paying interest on money it already owes to its debt holders.

Without an extension of the debt ceiling -- not only will many government offices be shutdown - the U.S. would be very vulnerable to suffering a heavy round of punishment delivered by its debt holders in the form of sharply higher interest rates - a condition, should it develop, that will undoubtedly push mortgage interest rates higher. The good news is that there is little sign in the credit markets right now that investors are deeply concerned about this potential issue. Depending how the political rhetoric develops starting on Tuesday evening -- market participants' current halfhearted and/or dismissive attitude toward this matter will change in the blink-of-an-eye.

I certainly not trying to scare anyone - but it is my job to keep you informed about conditions that may potentially create a significant changed in the current level of mortgage interest rates. The manner and financial processes the President and Congress choose to employ as they address the national debt ceiling issue certainly packs enough potential "firepower" to make a big difference in your investors' rate sheets over the course of a very short period of time. Heads up.

The coming week's economic reports include December New Home Sales on Wednesday, initial weekly jobless claims and December Durable Goods Orders on Thursday and on Friday market participants will get a look at the first estimate of the pace of economic growth in the last-quarter of 2010 (as measured by Gross Domestic Product). These reports will add a little empirical evidence to support the broad opinion of most credit market participants that the economic recovery from the worst slump since the Great Depression gained a little momentum as the previous year drew to a close. This is a view that has already been well priced into the mortgage market - so further upward adjustments to mortgage interest rates as a direct result of this week's battery of economic reports will likely be small - if they occur at all.

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

Daily Commentary by Larry Baer 1.21.2011

Commentary: The surprisingly lousy 10-year inflation-indexed Treasury note auction yesterday knocked the bottom out of what initially appeared to be a point from which a little rally to fractionally lower rates could be expected to develop.

Yesterday's poor demand for the government's offering of $13 billion worth of 10-year Treasury Inflation-indexed securities has made both domestic and foreign investors especially skittish as Uncle Sam cues up a three-part $99 billion debt auction that will run Tuesday through Thursday next week. Corporate America doesn't want to be left out of the borrowing spree - so they have plans to sell $20 to $25 billion of their own debt next week. The coming heavy round of supply may widely outstrip demand - and that is a condition, should it develop, that is almost certain to put upward pressure on mortgage interest rates - at least through the last Treasury auction on Thursday.

The coming week's economic calendar is not likely going to be much of an influence on the trend trajectory of mortgage interest rates. The Federal Open Market Committee will huddle on Tuesday and Wednesday to plot monetary policy for the next six weeks. The statement that will follow the conclusion of the Fed's meeting will shed some light on how the central bankers interpret the recent improvement in the economic data. The likelihood that the Fed's conclusion that economic growth is uneven and still very vulnerable to setback will not likely differ significantly from the view of the investment community at large. If so, the impact of this event on the trend trajectory of mortgage interest rates will likely be imperceptible.

The coming week's economic reports include December New Home Sales on Wednesday, initial weekly jobless claims and December Durable Goods Orders on Thursday and on Friday market participants will get a look at the first estimate of the pace of economic growth in the last-quarter of 2010 (as measured by Gross Domestic Product). These reports will add a little anecdotal evidence to support the broad opinion of most credit market participants that the economic recovery from the worst slump since the Great Depression gained a little momentum as the previous year drew to a close. That is a view that has already been well priced into the mortgage market - so further upward adjustments to mortgage interest rates will likely be small - if they occur at all.

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

Wednesday Market Update Video 1.20.2011

We did the Wednesday Market Update on Thursday this week because of the bank holiday on Monday. Click here to view the video.

Daily Commentary by Larry Baer 1.20.2011

Commentary: The mortgage market stumbled out of the gate this morning - tripped up by a stronger-than-expected weekly jobless claims report.

The Labor Department said the number of American's standing in-line to file for first-time government unemployment benefits fell by 37,000 during the week ended January 15^th. The data reinforces the idea that the labor market is making some gradual progress - but readings this time of year should be taken with a "grain-of-salt" due to holiday-related employment and weather issues. The number of people receiving extended government unemployment benefits rose by 29,000 during the reporting period.

In a separate report the National Association of Realtors said existing home sales jumped more than expected in December - posting a gain of 12.3%. Most economists had anticipated existing home sales would climb by a much more modest 4.0% during the last month of the year. Rising interest rates and falling prices likely combined to push potential buyers off-of-the-fence and into the housing market. The median home price fell to $168,000, down from $170,000 in November. The median home price has not been this low since February, 2010. The number of "distressed" sales accounted for 36% of all transactions - up from 33% in November.

Uncle Sam will be in the credit markets this afternoon peddling $13 billion of 10-year inflation-indexed securities. The "adjustable" feature of these notes will likely attract strong demand from domestic and foreign investors alike. If so, this auction will have little, if any noticeable impact on the current level of mortgage interest rates. The auction will conclude at 1:00 p.m. ET and I'll let you know how things turn-out by posting the result on my website as quickly as possible thereafter.

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

Daily Commentary by Larry Baer 1.19.2011

Commentary: The Commerce Department reported this morning that December housing starts fell 4.3% to their lowest level in a year. Although the decline in starts was sharper than expected, the number of building permits filed increased by a much stronger than anticipated 17.0%. Inclement weather probably played a significant role in the soft housing starts number while changes in building codes for 2011 may have contributed in part to the outsized gains in permits as builders hustled to get projects approved before the code changes took effect. In any case, mortgage investors gave this data nothing more than a passing glance.

As they do every Wednesday the Mortgage Bankers of America have released their mortgage application survey for the week ended January 14^th. According to the MBA, applications for refinance loans were up 7.7% during the week while home purchase loan demand slipped 1.9% lower. On a national basis refinance requests represent 3 out of every 4 loans currently in process. The average contract for a 30-year fixed rate mortgage finished the week at 4.77%, down by 1 basis point from week ago levels, down by 8 basis points from four weeks ago and down 24 basis points from the year ago mark.

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

Daily Commentary by Larry Baer 1.17.2011

Commentary: Trading activity in the mortgage market is very light this morning.

The economic calendar offers nothing for investors to chew-on so the direction of mortgage interest rates is currently being dictated by trading action in the stock markets -- with this morning's higher stock prices dragging mortgage interest rates fractionally higher.

For what it is worth -- my price and time models are flashing an increasing number of signals suggesting the stock markets are fast approaching a significant multi-day as well as a multi-week high. If my assessment proves accurate, a hard break downward for stock prices will almost certainly create a solid round of "flight-to-quality" buying of Treasury debt obligations and mortgage-backed securities - a condition that will undoubtedly prove to be supportive of the prospects for steady to fractionally lower mortgage interest rates.

Be patient, be disciplined, and use the strategies outlined above as a guide as you layout your pipeline risk management regimen for the week.

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

Daily Commentary by Larry Baer 1.14.2011

Commentary: December retail sales rose slightly less than expected, posting a gain of 0.6% versus the 0.8% increase economists had anticipated. Stripping out auto sales, retail sales were up 0.5%. The December sales gain capped six consecutive months of sales improvement. For the entire year sales were up 6.7% in 2010, the largest yearly gain since an 8.2% jump in 1999. Even though retailers' cash registers were ringing more loudly than they have in some time last year -- the underlying inflation pressure at the consumer level remained tame.

The Labor Department reported this morning that the consumer price index edged 0.5% higher last month, led by higher energy costs. The core rate of inflation at the consumer level, which excludes the more volatile food and energy prices, increased a very modest 0.1%.

A separate report this morning showed a surprisingly large gain of 0.8% for industrial production last month - but capacity utilization remained well below levels where production bottlenecks might be expected to create delivery delays -- which in-turn could ignite a round of inflation producing price increases as supply falls below demand.

The collective story found in this morning's battery of reports points to an economy that is expanding - but well below a pace that might be expected to create inflation pressures - and that's a story that could not be much better for the near-term prospects for steady to perhaps fractionally lower mortgage interest rates.

Looking ahead to the coming holiday shortened week - nothing in the way of market moving data appears on the calendar. Wednesday the Commerce Department will release the December housing starts and building permits numbers and Thursday will feature the weekly initial claims data for the week ended January 15^th, December leading indicators and the existing home sale figures.

I expect the trend trajectory of mortgage interest rates next week will be far more influenced by trading action in the stock markets than by any of the scheduled economic releases. If my assessment is correct, falling stock prices will tend to support steady to perhaps fractionally lower mortgage interest rates while rising stock prices will likely drag mortgage interest rates higher as well.

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

Daily Commentary by Larry Baer 1.13.2011

Commentary: Uncle Sam will be in the credit markets one more time today looking to peddle $13 billion worth of 30-year notes. This will be the last of three Treasury auctions scheduled for the week - and like the others - today's event will conclude at 1:00 p.m. ET. I'll post the auction results on my website as quickly as possible once the final gavel falls.

Spain and Italy staged successful bond sales earlier today reducing, at least temporarily, the flow of "flight-to-quality" capital moving from riskier debt instruments in Europe to the relative safe-haven of U.S. Treasury debt obligations. Even so, a 30-year Treasury bond with a yield north of 4.50% (currently trading with a yield of 4.508%) will probably be hard to resist for market participants like pension funds and insurance companies that have explicit need to hold long-term debt as part of their asset-liability matching requirements.

The first 30-mintues following the auction will likely see whipsaw trading action in the mortgage market - before the real underlying trend establishes itself. Though it is a close call - my models are flashing signals suggesting the 30-year bond auction will tend to be supportive of steady to perhaps fractionally lower mortgage interest rates. A poorly bid auction this afternoon will almost certainly induce mortgage investors to push note rates higher. Heads up.

In other almost unnoticed news of the day the Labor Department reported claims for the week ended January 8^th climbed by 35,000. Experienced traders essentially shrugged-off this outsized surge in the number of Americans standing in line to file for their first week of jobless benefits. The first week or two of the year is "historically the highest week for claims because of the Christmas and New Year's holidays.

In a separate report the Labor Department said prices at the producer level climbed 1.1% higher in December, largely reflecting a spike in energy prices. Excluding the more volatile food and energy components of this data set, the core rate of inflation for wholesalers rose a tame 0.2% last month. These numbers were generally inline with most market participant's expectations - and therefore had no perceptible impact on the direction of mortgage interest rates today.

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

Wednesday Rate Update Video 1.12.2011

Rates are up slightly today. Click here to view your Wednesday Market Update.

Daily Commentary by Larry Baer 1.12.2011

Commentary: Uncle Sam will be in the credit markets again today looking to peddle $21 billion worth of 10-year notes. This will be the second of three Treasury auctions scheduled for the week - and like the others - today's event will conclude at 1:00 p.m. ET. I'll post the auction results on my website as quickly as possible once the final gavel falls.

Yesterday news that Japan will show support for the financially hard hit euro zone by promising to buy bonds from the region together with a report that a Portuguese bond sale held earlier today drew better-than-expected demand has probably eliminated a significant amount of foreign "flight-to-quality" buying that would have otherwise found its way into today's U.S. Treasury note auction.

A poorly bid auction this afternoon will almost certainly induce mortgage investors to push note rates higher. Heads up.

It is Wednesday which means the Mortgage Bankers of America have released their loan application statistics for the latest week. According to the MBA overall loan demand was up 2.2% during the week ended January 7^th. A 4.9% increase in refinance requests more than offset a 3.7% decline in purchase money demand. On a national basis refinance requests currently represent 7 out of 10 of all loans in process. The national contract rate for a fixed-rate 30-year mortgage finished the week at 4.78%, down 4 basis points from the prior week, down 6 basis points from four weeks ago, and down 35 basis points from the year ago level.

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

2010 Archives

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Daily Commentary by Larry Baer 1.11.2011

Commentary: The mortgage market is besieged by rather heavy wave of selling pressure that is washing through the credit markets as Uncle Sam begins to pump $66 billion of supply into a market place already suffering from a lack of demand.

Overnight news that Japan will show support for the financially hard hit euro zone by promising to buy bonds from the region eliminated a significant amount of foreign "flight-to-quality" buying that would have otherwise found its way into this week's three-part Treasury auction process.

As I mentioned yesterday Wall Street banks are cutting their holdings of Treasuries at the fastest pace since 2004. The 18 primary dealers that trade with the Federal Reserve reported that their collective holdings of government debt tumbled to a net $2.34 billion on December 29^th -- from $81.3 billion on November 24^th -- and that is a condition that does not particularly bode well for the likelihood these major broker/dealers will show up with big buying appetites at this week's government debt auctions.

If any one -- or combinations of the three upcoming Treasury auctions are poorly bid -- it is almost a certainty that mortgage investors will push note rates higher. Heads up.

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

Daily Commentary by Larry Baer 1.10.2011

Commentary: The government is scheduled to sell a combined $66 billion worth of Treasury debt obligations this week: $32 billion of 3-year notes tomorrow; $21 billion of 10-year debt on Wednesday and $13 billion of 30-year bonds on Thursday. The auctions will conclude at 1:00 p.m. ET and I will post results on my website as quickly as possible once the final gavel falls.

Because of its relatively short duration the 3-year note offering will likely draw sufficient demand from domestic and global investors that this event will not be much of a factor in terms of influencing the direction of mortgage interest rates. The 10-year and 30-year bond offerings represent a bigger concern.

According to data complied by Daniel Kruger, a correspondent for Bloomberg.com, Wall Street banks are cutting their holdings of Treasuries at the fastest pace since 2004. These firms are redeploying this capital in anticipation the economy will strengthen and demand for higher-yielding assets like stocks and corporate debt instruments will increase. The 18 primary dealers that trade with the Federal Reserve reported that their collective holdings of government debt tumbled to a net $2.34 billion on December 29^th -- from $81.3 billion on November 24^th. That is a heck of a job of house cleaning in anybody's book - and it does not particularly bode well for the likelihood these major broker/dealers will show up with big buying appetites at this week's government debt auctions.

Keep your fingers crossed that ongoing sovereign debt turmoil in the euro zone together with the fact that the upcoming supply of 10- and 30-year Treasuries are on track to be sold at their highest level in seven months will be enough incentive to induce foreign investors to show up aggressively on Wednesday and Thursday. If one or both of these auctions are poorly bid -- it is almost a certainty that mortgage investors will push note rates higher. Heads up.

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