Wednesday Market Update Video 5.25.2011

Mortgage interest rates are awesome! Click here to view this week's Wednesday Market Update.

Daily Commentary by Larry Baer 5.25.2011

The day’s single economic headline did nothing to stir lethargic investors into action. According to the Commerce Department orders of goods manufactured to last three-years or more edged 3.6% lower on a month-over-month basis. It was the largest such decline for this measure of activity in the factory sector since October. The bulk of the decline was related to the transportation component as motor vehicle and parts production was held back by supply chain disruptions created by the disaster in Japan. There was nothing here that mortgage investors did not expect to see -- so they shrugged the whole thing off.

As they do every Wednesday, the Mortgage Bankers of America have released their mortgage application survey for the week ended May 20^th. Overall loan demand was up by 1.1%, led by a positive reversal in the number of applications taken for purchase money mortgages. The purchase index was up 1.5% on a month-over-month basis while the refinance index posted a more modest gain of 0.9%.

The contract rate for 30-year fixed rate mortgages finished at 4.69%, up 0.9% points from a week ago, down 11 basis points from the month-ago mark, and down a matching 11 basis points from the year ago level. Refinance requests accounted for 6 out of every 10 applications taken during the week.

Domestic and foreign investor demand for longer-dated Treasury debt will be tested today as the government looks to sell $35 billion of 5-year notes at auction. Five-year offerings have been less than stellar performers at recent auctions. If demand is soft at today’s sale look for mortgage investors to use the weak demand as justification to nudge mortgage interest rates fractionally higher later this afternoon. On the other hand, should credit market participants show a strong appetite for these 5-year notes, mortgage interest rates will likely remain relatively steady for the day.

It is a close call, but I think both domestic and foreign investors are probably going to find it difficult to get too excited about aggressively bidding for an asset with a price drifting near its highest level since December. If my assessment proves accurate, it will be difficult, if not impossible, for mortgage rates to move notably lower from current levels through close of trading today. I’ll post the auction result on my website as soon as possible once the final gavel falls at 1:00 p.m. ET.

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

Daily Commentary by Larry Baer 5.23.2011

In the absence of any economic data to guide sentiment - most mortgage investors will likely spend the balance of the day putting the finishing touches on their risk management strategies in front of this week's $99 billion, three-part Treasury debt auction. Uncle Sam will be peddling $35 billion of 2-year notes tomorrow, $35 billion of 5-year notes on Wednesday and $29 billion of 7-year notes on Thursday. Given the recent increased volatility surrounding domestic and global headlines from the financial markets -- investors are very uncertain about what the correct levels for yields should currently be. Investor nervousness in front of the coming Treasury auctions seems unusually high. The "so what" factor is direct and straightforward -- nervous investors are not normally inclined to push mortgage rates notably lower. Heads up.

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

Larry Baer's Market Viewpoint for the week of 5.23.2011

Market Commentary: It will be a busy holiday shortened
week in the mortgage market.

Investors will be watching the economic data closely as they
look for clues that suggest the U.S. economy is either simply
traversing through a soft patch – or slipping back into a
recession.

Thursday’s revised Q1 Gross Domestic Product numbers
and the detail contained in the April Personal Income and
Spending report have the greatest potential to tilt the trend
trajectory of mortgage interest rates one way or the other this
week.

The three-part Treasury debt auctions scheduled for
Tuesday through Thursday will likely be the “wild card” with
respect to the mortgage market.

Solid demand for all three offerings will tend to support
steady to perhaps fractionally lower mortgage interest rates.

Should one or more of this week’s debt sales show
disappointingly weak demand – it will likely spook the heck
out of mortgage investors – and that is a condition almost
certain to cause note rates to creep higher.

Economic Calendar for the week of May 23rd

Mon. May 23

Tues. May 24, 10:00 a.m. ET April New Home Sales +0.3% vs. last +0.3%

Sharp declines in the weekly mortgage purchase application
index strongly suggest demand for new homes remains
sluggish -- a condition that will surprise no one. This data will
likely exert little, if any influence on the direction of mortgage
interest rates today.

Tues. May 24, 1:00 p.m. ET Treasury sells $35 billion of 2-year notes

The relative short maturity of this security should be attractive
to a large number of investors. If so, this event will likely have
little, if any meaningful impact on the direction of mortgage
rates.

Wed. May 25, 8:30 a.m. ET April Durable Goods Orders -2.2% vs. last +4.1%

The headline number is probably skewed by the transportation
orders component of this data set as vehicle and parts
production has been held back by Japan related supply
disruptions. Look for mortgage investors to shrug this report
off this time around.

Wed. May 25, 1:00 p.m. ET Treasury sells $35 billion of 5-year notes

Worries over Washington’s inability to reach a deficit cutting
deal and weak liquidity in front of the approaching Memorial
Day weekend may cause bidding to be soft at today’s auction.
If so, expect to see some upward pressure on mortgage
interest rates to develop this afternoon.

Thurs. May 26, 8:30 a.m. ET Initial jobless claims for the week ended 5/21 Down 9,000 to 400,000

Until the total number of first-time claims for jobless benefits
once again falls below 400,000 on a week-over-week basis --
this data will tend to support steady mortgage interest rates.

Thurs. May 26, 8:30 a.m. ET Revised Q1 Gross Domestic Product +2.1% vs. last +1.8%

The economy’s first-quarter growth rate is almost certain to be
revised fractionally higher – a condition that is already well
priced into the mortgage market.

Thurs. May 26, 1:00 p.m. ET Treasury sells $29 billion of 7-year notes

If the yield on this offering rises -- it is highly likely mortgage
interest rates will begin to climb higher as well. As I mentioned
earlier -- worries over Washington’s inability to reach a deficit
cutting deal and weak liquidity in front of the approaching
Memorial Day weekend may cause bidding to be soft at today’s
auction. Pay attention here.

Fri. May 27, 8:30 a.m. ET
April Personal Income +0.4% vs. last +0.5%
Spending +0.5% vs. last +0.6%
PCE Index +0.2% vs. last +0.1%

In the off-chance spending and/or the personal consumption
expenditure index (the Fed’s favorite measure of inflation at the
consumer level) posts a reading greater than its respective
consensus estimate -- look for mortgage interest rates to edge
higher on the day.

Fri. May 27, 2:00 p.m. ET Mortgage market closes early for Memorial Day Holiday

Mon. May 30 Mortgage market closed for the Memorial Day Holiday

Daily Commentary by Larry Baer 5.19.2011

Commentary: The mortgage market is treading water this morning - balanced between a larger than expected decline in the initial weekly jobless claims number that was mortgage market unfriendly -- and a mortgage market friendly softer-than-expected April Existing Home Sales number. In a nutshell, the recent macro-economic data is suggesting the pace of growth through the summer months may be exceptionally choppy. When uncertainty prevails, mortgage investors tend to take a "safe rather than sorry" approach to their rate sheet pricing strategies - a tactic that seldom proves supportive of the prospects for notably lower mortgage interest rates.

Uncle Sam will be in the credit markets this afternoon looking to borrow $11 billion in the form of a 10-year inflation-index security. Lower energy costs of late and slowing economic growth has reduced anxiety over inflation -- which likely means demand for this debt issue will be weak. If my assessment proves accurate, look for the mortgage market to succumb to selling pressure as the afternoon progresses.

There is nothing of consequence on the economic calendar for the balance of the week. In this environment a large number of mortgage investors will likely choose to take directional cues for note rates from trading activity in the stock market. Higher stock prices will tend to drive mortgage interest rates higher -- while falling stock prices will probably prove supportive of steady to perhaps fractionally lower rates.

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

Wednesday Market Update Video 5.18.2011

Mortgage interest rates have continued to improve over the past two weeks. Click here to view this week's Wednesday Market Update Video.

Daily Commentary by Larry Baer 5.18.2011

It is a slow day in the mortgage market.

This afternoon's 2:00 p.m. ET release of the minutes of the Federal Open Market Committee's April meeting will draw a little interest from those fruitlessly looking for clues regarding the timing of the central bank's next move to exit from its ultra interest-rate friendly monetary policy.

Other than this afternoon's event - the majority of the market day will likely prove to be as boring as standing in a long line to renew your driving license.

As they do every Wednesday, the Mortgage Bankers of America have released their mortgage application survey for the week ended May 13, 2011. According the MBA the overall number of applications taken last week rose 7.8% from the preceding week - driven in large part by an impressive 13.5% increase in refi requests. The number of applications taken for purchase money mortgages actually dropped 3.5% during the period.

The contract rate for 30-year fixed-rate mortgages finished at 4.6%, down 7 basis-points from a week ago, down 23 basis-points from four-weeks ago, and down by 24 basis-points from a year ago. Refinance requests drove 7-out-of-10 of all loan applications taken last week.

The slow economic news week will likely find mortgage investors taking directional cues for note rates from trading activity in the stock market. Higher stock prices will tend to drive mortgage interest rates higher while falling stock prices will probably prove supportive of steady to perhaps fractionally lower rates.

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

Larry Baer's Market Viewpoint for the week of 5.16.2011

The coming week doesn’t
offer much in the way of economic data for
mortgage investors to play off of as they make
decisions regarding the appropriate level for
interest rates.

Uncle Sam will reach his debt limit on Monday
and Congress is still a long way from reaching
agreement on authorizing an increase in
borrowing capacity. The Treasury Department
will set in motion a series of extraordinary
measures to keep the government’s lights turned
on and to make debt payments. The fancy
financial footwork will only keep the wolves from
the door for a limited time – probably no later than
early August by most estimates.

The political rhetoric from both sides of the
Congressional aisle will undoubtedly dominate
news headlines – but few doubt a budget deal will
be made and the debt ceiling will be raised well
before a major credit default by the U.S. occurs.
That’s the good news.

The bad news is that the longer the politicos play
“chicken” with the sovereign creditworthiness of
the nation – the more difficult it will be for
mortgage interest rates to move sideways to
fractionally lower.

Economic Calendar for the week of May 16th 2011

Mon. May 16

Tues. May 17, 10:00 a.m. ET April Housing Starts & Building Permits, estimates +3.8% +0.8%

Tues. May 17, 9:15 a.m. ET April Industrial Production & Capacity Utilization, estimates +0.6% vs. last +0.8% 77.7% vs. last 77.4%

Wed. May 18, 2:00 p.m. ET Minutes from the April FOMC meeting

Thurs. May 19, 8:30 a.m. ET Initial jobless claims for the week ended 5/7, estimate Down 20,000 to
410,000

Until the total number of first-time claims for jobless benefits
once again falls below 400,000 on a week-over-week basis --
this data will tend to support steady mortgage interest rates.

Thurs. May 19, 10:00 a.m. ET April Leading Indicators, estimates +0.2% vs. last +0.4%

Thurs. May 19, 10:00 a.m. ET April Existing Home Sales, estimate Up 1.9%

The pace of existing home sales is starting to show month over-
month improvement – suggesting to some analysts that
the housing sector may be within months of reaching a
meaningful bottom. Affordability is at its best levels in more
than 17-years and 30-year mortgage rates are within shouting
distance of their record lows. This data will certainly draw a
glance from mortgage investors but will otherwise not likely be
a factor in determining the near-term direction of note rates.


Fri. May 20,

Daily Commentary by Larry Baer 5.12.2011

Commentary: Credit market participants are milling around this morning with their hands in their pockets waiting for the Treasury Department to wrap-up this week's three-part auction series. Today's $16 billion 30-year bond offering may require the government to "sweeten the pot" a little by bumping up the yield just a bit. If so, look for mortgage interest rates to creep fractionally higher as well. I will post the auction result on my website as soon as possible once the final gavel falls at 1:00 p.m. ET today.

This morning's rapid-fire round of macro-economic news proved to be a "mixed-bag" in terms of the trend trajectory of mortgage interest rates. April Retail Sales, April Producer Price index and the weekly claims for unemployment benefits came in not far off expectations. The "fly-in-the-ointment" with respect to the outlook for yet lower rates appeared in the form of the hotter-than-expected core rate inflation at the producer level. This measure of inflation pressures at the factory gates (a value that excludes the more volatile food and energy components) rose 0.3% for the second month in a row. Most analysts had been anticipating a more modest 0.2% increase for the core rate of the April Producer Price Index. Should raw material costs continue to rise at this pace - businesses will soon have no choice but to pass through the increase to the consumer in the form of a retail price hike.

Mortgage investors will be keenly focused on tomorrow morning's release of the April Consumer Price Index. If the core rate of inflation (excluding food and energy costs) for the man on Main Street exceeds 0.2% -- the potential for yet lower mortgage interest rates will likely dim considerably. Heads up.

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

Daily Commentary by Larry Baer 5.11.2011

Commentary: Different day - same story.

Uncle Sam will be in the credit markets looking to sell $24 billion of ten-year notes today. The Fed has been the dominant buyer of Treasuries sold at recent auctions. Fed Chairman Bernanke has about $75 billion of his original $600 billion "QE2" stimulus allocation left in his checkbook - a sum he intends to spend before the program ends next month. Most observers expect the Fed will use whatever amount is required to "crease-the-wheels" at this week's government debt sale. If so, today's $24 billion 10-year note offering and tomorrow's $16 billion 30-year bond sale will likely have little, if any discernible impact on the trend trajectory of mortgage interest rates. These two government debt sales will conclude at 1:00 p.m. ET. I'll post the auction results on my website as soon as possible once the final gavel falls.

It is Wednesday -- which means the Mortgage Bankers of America are out with their latest mortgage application survey. According to the MBA, mortgage application activity picked up during the week ending May 6^th. The number of applications taken for purchase money loans increased 6.7% from the prior week mark -- while refinance requests were up 9.0% for the period. The composite index rose 8.2% from the preceding week.

The MBA said the national average contract rate for 30-year fixed-rate mortgages finished the week at 4.67%, down by 9 basis-points from the prior week, down by 31 basis-points from four-weeks ago, and down by 29 basis-points from year ago levels. Refinance applications represented six out of every ten applications taken for the week.

Not much in the way of economic news is on the docket until tomorrow when investors will react to the inflation data contained in the April Producer Price Index and we will get a chance to see how big a hunk, if any, higher energy prices took out of the April Retail Sales numbers. The second part of the inflation story will be told on Friday with the release of the April Consumer Price Index. As long as the core rates (a value that excludes the more volatile food and energy price components) of both the Producer and Consumer Price Indexes remain at 0.2% or below these two data series will likely have little influence on the level of mortgage interest rates. In the off-chance one or both of the core indexes of these two primary measures of inflation post a reading of 0.3% or more -- look for mortgage rates to make a noticeable move to higher levels.

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

Daily Commentary by Larry Baer 5.10.2011

Commentary: Uncle Sam will be in the credit markets looking to sell $32 billion of three-year notes today. The Fed has been the dominant buyer of Treasuries sold at recent auctions. Fed Chairman Bernanke has about $75 billion of his original $600 billion "QE2" stimulus allocation left in his checkbook - a sum he intends to spend before the program ends next month. Most observers expect the Fed will use whatever amount is required to "crease-the-wheels" at this week's government debt sale. If so, today's 3-year note auction together with tomorrow's $24 billion 10-year note offering and Thursday's $16 billion 30-year bond sale will likely have little, if any discernible impact on the trend trajectory of mortgage interest rates. Each of these three government debt sales will conclude at 1:00 p.m. ET. I'll post the auction results on my website as soon as possible once the final gavel falls.

Not much in the way of economic news is on the docket until Thursday when investors will react to the inflation data contained in the April Producer Price Index and we will get a chance to see how big a hunk, if any, higher energy prices took out of the April Retail Sales numbers. The second part of the inflation story will be told on Friday with the release of the April Consumer Price Index. As long as the core rates (a value that excludes the more volatile food and energy price components) of both the Producer and Consumer Price Indexes remain at 0.2% or below these two data series will likely have little influence on the level of mortgage interest rates. In the off-chance one or both of the core indexes of these two primary measures of inflation post a reading of 0.3% or more -- look for mortgage rates to make a noticeable move to higher levels.

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

Weekly Update by Bill Fisher

At the end of last week, I suggested that we should watch silver and gold very closely, along with the movements of the 10-year T-note. Over the past week, the T-note, gold and especially silver put on quite a show. Most commodities tumbled, especially on Thursday (the day before the relatively favorable data on April employment was released).

Oil prices fell nearly 9% on Thursday, and the whole CRB Index—measuring a large basket of commodity prices—fell 4.9%. Silver fell about 8% on the day, and 27.4% over the course of the week (where gold lost 4.2%). Clearly, it was silver’s turn to do a spectacular swan dance, causing many analysts to say that the tremendous investor interest in the metal (which had gained 171% in value over the past year) had created a bubble. And this past week, it apparently popped.

There are plenty of analysts who disagree, of course. Many who are certain they can feel inflation’s hot breath on their necks say that we are simply seeing a temporary correction in commodities markets—especially in the silver market—and that the demand for commodities will soon bring prices back to where they were. Call it, in other words, a great buying opportunity.

Others call it a great selling opportunity, either because they believe prices will fall further, giving us an even better chance to buy back into the markets in the future. And others feel it’s a great selling opportunity, allowing us to rid ourselves of commodity holdings before they fall a great deal further.

And yet others see it as a time to wait patiently for the recovery to continue asserting itself, taking interest rates gradually higher and bringing commodity prices back into more normal ranges relative to other prices.

In other words, in a market where most people are very confident of their positions, it’s nonetheless especially difficult to find anyone—certainly not me, for instance—who has a very clear idea of what is transpiring. As Harvard economist Gregory Mankiw put it this past weekend, “If you find an economist who says he knows the answers, listen carefully, but be skeptical of everything you hear.”

We do know a few things. The silver market was showing increasing volatility a couple of months before this past week began and many institutional investors had quietly sold off holdings, leaving private investors like you and me to keep the silver bird flying ever higher. Clearly, it was something of a bubble, reminiscent of a stock like Qualcomm in the weeks (many years ago) before it tanked.

But was it the canary in the mineshaft, suggesting weakness in all commodity prices, or was it the standout self-immolation, suggesting nothing about the rest of the market? Silver is always an unusual investment. Unlike gold, its value arises from industrial and commercial uses of the metal. It isn’t just an alternative currency. (Just, you say?) It often gains great value long after gold has started a lengthy rise. And it’s even more volatile than gold, as a rule.

We also have the April employment report to consider, and the killing of bin Laden, but these matters—as freighted with confusion and political dynamite as they may be—don’t really have much to do with silver. The number of the employed apparently fell while the number of new payrolls rose and about the same number of people were seeking jobs. That doesn’t work out mathematically, so I’m inclined to smile patiently at the jobs report but to wait for more data before I start to talk about an improving jobs market.

What’s most interesting to me, therefore, is whether commodity prices recover or continue to fall. I doubt at this point that we’ll have economic indicators that truly mean something solid to us until QE2 has been put into dry docks and the Fed stops tinkering so much with the credit markets. Meanwhile—we have very workable mortgage rates again…but do not take them for granted. They could turn on a dime.

by: Bill Fisher

Daily Commentary by Larry Baer 5.9.2011

Commentary: Uncle Sam will be in the credit markets looking to sell $32 billion of three-year notes, $24 billion of 10-year notes, and $16 billion of 30-year bonds on Tuesday, Wednesday and Thursday. The Fed has been the dominant buyer of Treasuries sold at recent auctions. Fed Chairman Bernanke has about $75 billion of his original $600 billion "QE2" stimulus allocation left in his checkbook - a sum he intends to spend before the program ends next month. Most observers expect the Fed will use whatever amount is required to "crease-the-wheels" at this week's government debt sale. If so, the upcoming round of auctions will likely have little, if any discernible impact on the trend trajectory of mortgage interest rates.

Not much in the way of economic news is on the docket until Thursday when investors will react to the inflation data contained in the April Producer Price Index and we will get a chance to see how big a hunk, if any, higher energy prices took out of the April Retail Sales numbers. The second part of the inflation story will be told on Friday with the release of the April Consumer Price Index. As long as the core rates (a value that excludes the more volatile food and energy price components) of both the Producer and Consumer Price Indexes remain at 0.2% or below these two data series will likely have little influence on the level of mortgage interest rates. In the off-chance one or both of the core indexes of these two primary measures of inflation post a reading of 0.3% or more -- look for mortgage rates to make a noticeable move to higher levels.

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

Larry Baer's Market Viewpoint for the week of 5.9.2011

The Fed still has roughly $75 billion to spend of its original $600 billion “QE2” funding allotment -- and they will likely use some of that cash to “crease-the-wheels” at this week’s three-part Treasury auction. Thursday’s April Retail Sales figures and Friday’s Consumer Price Index will be closely examined by mortgage investors. In the unlikely event we see a gain of more than 0.6% for the ex. auto component of the Retail Sales report and/or a reading of 0.3% or higher for the core rate of the Consumer Price Index -- expect the four-week rally favoring lower mortgage interest rates to come to a shuddering halt.

Economic Calendar for the week of May 9th 2011

Mon. May 9, No news

Tues. May 10, 10:00 a.m. ET March Wholesale Inventories +1.0% vs. last +1.0%

Tues. May 10, 1:00 p.m. ET Treasury sells $32 billion of 3-year notes

Tues. May 10 before the close Most mortgage-backed securities “roll” to June delivery

Wed. May 11, 1:00 p.m. ET Treasury sells $24 billion of 10-year notes

Thurs. May 12, 8:30 a.m. ET Initial jobless claims for the week ended 5/7 Down 44,000 to 434,000

Until the total number of first-time claims for jobless benefits once again falls below 400,000 on a week-over-week basis -- this data will tend to support steady mortgage interest rates.

Thurs. May 12, 8:30 a.m. ET April Retail Sales +0.6% vs. last +0.4% Ex. Auto +0.6% vs. last +0.8%

Thurs. May 12, 8:30 a.m. ET April Producer Price Index +0.6% vs. last +0.7% Core Rate +0.2% vs. last +0.3%

The headline measure of inflation at the factory gate is
expected to post another solid gain in April – driven almost
entirely by higher fuel costs. The more important core rate (a
value that is stripped of the volatile food and energy
components) is projected to post a gain of 0.2%. In the
unlikely event the core rate posts a reading of 0.3% or more --
look for mortgage interest rates to finish the day higher.


Thurs. May 12, 10:00 a.m. ET March Business Inventories +0.8% vs. last +0.5%

Thurs. May 12, 1:00 p.m. ET Treasury sells $16 billion of 30-year bonds

Fri. May 13, 8:30 a.m. ET April Consumer Price Index +0.4% vs. last +0.5% Core Rate +0.2% vs. last 0.1%

Daily Commentary by Larry Baer 5.6.2011

Commentary: During the month of April private sector employers shrugged off sky-high energy prices to add jobs at the fastest pace in five years - yet the jobless rate rose to 9.0% from the 8.8% level the prior month. Payroll figures for the previous two months were revised higher to show 46,000 more jobs were created than were previously reported. Details contained in the April employment report were generally upbeat with the exception of government employment, which contracted for a sixth straight month in April, shedding 24,000 jobs.

Judging by trading action in the mortgage market this morning -- it appears investors are completely discounting last month's better-than- expected headline news with regard to job creation - and are instead expecting forthcoming labor market data to tell a much more mortgage market friendly story.

Weekly applications for state unemployment benefits have jumped by almost 100,000 in the past eight weeks and overall participation in the labor market remains as low as it was in the mid-1980's. The slowdown in the labor sector is currently assumed to be a condition of a slowdown in overall economic growth. The good news here is that mortgage interest rates will likely move sideways to perhaps fractionally lower until signs of a sustained accelerating in job creation develop - the bad news is that fewer and fewer perspective borrowers will be able to avail themselves of these handsome rates since current employment status remains a major underwriting standard.

Looking ahead to next week -- Uncle Sam will be in the credit markets from Tuesday through Thursday looking to borrow $77 billion in the form of 3- and 10-year notes together with a small segment ($16 billion) of 30-year bonds. Not much in the way of economic news is on the docket until Thursday when investors will react to the inflation data contained in the April Producer Price Index and we will get a chance to see how big a hunk, if any, higher energy prices took out of the April Retail Sales numbers. The second part of the inflation story will be told on Friday with the release of the April Consumer Price Index. As long as the core rates (a value that excludes the more volatile food and energy price components) of both the Producer and Consumer Price Indexes remain at 0.2% or below these two data series will likely have little influence on the level of mortgage interest rates. In the off chance one or both of the core indexes of these two primary measures of inflation post a reading of 0.3% or more -- look for mortgage rates to make a noticeable move to higher levels.

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

Daily Commentary by Larry Baer 5.5.2011

Commentary: News from the Labor Department earlier this morning indicating the number of Americans filing first-time claims for jobless benefits rose to an eight-month high last week did nothing but add support to the current rally in the mortgage market. Initial claims for state unemployment benefits rose 43,000 during the week ended April 30^th to a seasonally adjusted 474,000, the highest mark since mid-August 2010. Applications for unemployment benefits have topped the key 400,000 level in each of the past four weeks. Requests for jobless benefits usually fall below 400,000 per week during periods of strong economic growth.

A Labor Department spokesperson said a spring break holiday in New York, a new emergency benefits program in Oregon, and auto shutdowns caused by the effects of the disaster in Japan were the main reasons for the outsized surge in claims.

This week's initial claims numbers fell outside of the survey period for tomorrow's much more important April Nonfarm Payroll report. Even so, based on today's surprisingly soft weekly claims data, many traders will be "penciling in" expectations the April Nonfarm Payroll figures will indicate growth in the labor sector has stalled. Look for mortgage interest rates to continue to creep lower should headline job creation for April fall below 180,000 and/or the national jobless rate climbs to 8.9% or higher.

A second report from the Labor Department this morning showed first-quarter nonfarm productivity increased at a 1.6% annual rate, braking sharply from the 2.9% pace set during the last three months of 2010. Most mortgage investors were so busy responding to the big surge in the weekly claims data they had little time to give this second report anything more than a passing glance.

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

Wednesday Market Update Video 5.4.2011

Mortgage interest rates continue to improve. They are at their lowest levels since December 9th! Click here to view this week's Wednesday Market Update.

Daily Commentary by Larry Baer 5.4.2011

Commentary: This morning's news that the Institute of Supply Management's index of activity in the service sector of the economy slumped a surprising 4.5% in April has proven supportive of fractionally higher mortgage prices in today's early trading.

Most investors appear to view today's sharp drop in the ISM service sector index a bit skeptically. The swoon in this economic benchmark stemmed from the largest decline in the new orders component of this data set since the ISM first began compiling this index 13 years ago. The April decline for new orders is larger than after 9/11, and larger than the mark set following Hurricane Katrina. Just two months ago this index hit a six-year high. While a plunge of the magnitude registered in today's report is certainly possible - most investors will likely need to see other separate but validating reports before beginning to aggressively price-in the likelihood the economy is slipping back into a recession.

In a separate report the Mortgage Bankers of America said the mortgage loan applications rose 4.0% on a week-over-week basis. Refinance applications rose 6.0% during the week ended April 29^th while purchase money requests were up a modest 0.3%. Six out of every ten loan applications taken last week were for refi's. The average national contract rate for 30-year fixed-rate mortgages finished the week at 4.76%, down 17 basis points from four weeks ago, down by 26 basis points from the month-ago mark, and down 26 basis points from year-ago levels.

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

Daily Commentary by Larry Baer 5.3.2011

Commentary: Trading activity is light this morning in the mortgage market. Investors gave this morning's news that March Factory Orders posted a stronger-than-expected gain of 3.0% nothing more than a passing glance. Friday morning's 8:30 a.m. ET release of the April Nonfarm Payroll data together with preparations for next week's $77 billion Treasury debt auction has sent many mortgage investors temporarily to the sidelines. It will probably take a nonfarm payroll report showing less than 125,000 new jobs were created in April together with a national jobless rate of 8.9% or higher to induce investors to push mortgage interest rates to notably lower levels. While such an outcome is certainly possible - the probability of such an outcome remains relatively low.

Since Sunday evening - the primary news story in the global media has revolved around Osama bin Laden. While the elimination of al Qaeda leader Osama bin Laden is considered by many to be a monumental military and psychological victory in the war on terrorism -- it has had little noticeable effect on the trend trajectory of global interest rates. Until the threat of terrorism is reduced to the point that massive military and governmental expenditures are deemed unnecessary - the battle against such extremist will continue to apply some degree of upward pressure on interest rates in general - and mortgage interest rates in particular.

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

Economic Calendar for the week of May 2nd

Mon. May 2, 10:00 a.m. ET April Institute of Supply Mgmt. Manufacturing Index 59.9 vs. last 61.2

Tues. May 3, 10:00 a.m. ET March Factory Orders +1.8% vs. last 0.1%

Wed. May 4, 10:00 a.m. ET April Institute of Supply Mgmt. Service Sector Index 57.4 vs. last 57.3

Thurs. May 5, 8:30 a.m. ET 1st Estimate Q1 Productivity & Unit Labor Cost +1.0% vs. last 2.6% +0.8% vs. last -0.6%

Thurs. May 5, 8:30 a.m. ET Initial jobless claims for the week ended 4/28 Down 19,000 to 410,000

(Until the total number of first-time claims for jobless benefits falls below 400,000 on a week-over-week basis -- this data will tend to support steady mortgage interest rates.)

Fri. May 6, 8:30 a.m. ET April Nonfarm Payrolls Jobless Rate Avg. hourly earnings +189,000 8.8% vs. last 8.8% +0.2% vs. last 0.0%

Weekly Update by Bill Fisher

“QE2, as the program was dubbed, will come to a close sometime by the end of June. To the extent that economic activity was boosted by the program, we could very well see a falloff in growth of a like amount. Discounting future growth may be at the heart of the recent decline in interest rates. Certainly, a decline [in] inflation wouldn't be.” [Keith Gumbinger, HSH Associates)

Okay, let’s see if we can get this right. The end of the QE2 program may mean a decline in the economic growth that was stimulated by the program (though there is little evidence that QE2 rustled up a significant amount of growth). And investors in the markets, Gumbinger asserts, are very likely already factoring that decline into their assessment of present economic growth. Therefore, interest rates—which fall when investors turn to Treasury securities—have already eased…much to our surprise. And they may ease further…as economic growth eases further.

Wait a minute. I have great respect for Keith Gumbinger and gratitude for the work his company does. But sheesh! I think we’re acting like dumpster divers here, sorting among the detritus for some way of explaining what’s been happening in the recent past. Couldn’t we, nearly equally, argue that rates should be rising because they will soon lack the support of the Fed which, as you doubtless recall, has been buying up Treasury securities like there’s no tomorrow and keeping that market as liquid as the Colorado River, stifling most inclinations for interest rates to rise?

I sympathize. I really don’t know which end is up at this point. I only know (1) that it is nearly impossible to explain what interest rates are doing and will be doing soon and why, and (2) those who seem convinced that they do know have earned increased skepticism (from me, at least).

There is a crowd that is certain inflation is about to be released upon the land like some kind of plague. In fact, many argue that it’s already out there, trying to work its way into our wallets and investment accounts. These analysts have been congratulating themselves on the continued upward movements for gold and silver, acting as if there’s a party going on here and they’re the only ones who answered the invitations sent out by the changing economy. They advise that we continue to buy silver and gold, that the values will continue rising inexorably (we haven’t reached the inflation-adjusted peak hit by gold in the 1980s, after all), and that the overall economy is about to be utterly ravaged by inflation, taking the value of inflation hedges higher and higher.

Last Friday, silver’s price fell off its high water mark, leaving investors dangling like one of those annoying “To Be Continued” endings to a movie mystery. Thankfully (I guess), we need only wait until Monday for some idea of which way silver will go now. Will it saunter into a correction that takes its value a good deal lower, or will it flaunt its unpredictability and rise further. Stay tuned.

by: Bill Fisher