Daily Commentary by Larry Baer: Perfect. The mortgage interest rate friendly implications of softer-than-expected economic data here at home almost perfectly offset the upward pressure on rates created by the better-than-expected result from Spain's 10-year bond auction concluded earlier this morning.
Global investors had been concerned Spain would struggle with today's debt sale due to deepening fiscal challenges not only within the country, but also within the region. The demand for today's offering was solid though driven by the fact that the Spanish government was forced to "sweeten-the-pot" by paying higher interest costs for the required capital. The successful Spanish debt sell averted, at least temporarily, what some had anticipated was going to be a major flow of capital out of the region into safe-harbor assets like U.S. dollar denominated Treasury debt obligations and agency eligible mortgage-backed securities. Mortgage interest rates ticked fractionally higher just before the U.S. markets responded to rather puny domestic economic reports.
News from the Labor Department indicating the number of Americans filing first-time claims for government unemployment benefits fell by a much weaker-than-expected 2,000 during the week of April 14th immediately defused the creeping upward pressure on rates created the results of the Spanish debt sale. Not only was the decline less than the drop of 10,000 most economists had anticipated, the prior week's number was revised higher by 8,000 claims. The latest jobless claims survey period coincides with the week the Labor Department gathers data for its more important Nonfarm Payroll report. Mortgage investors were quick to revise down their estimates for the April employment figures. Declining labor market conditions generally result in declining demand for capital - which in-turn points to steady to perhaps fractionally lower mortgage interest rates.
The disappointing March Existing Home Sales figures released later in the morning tipped the scale in favor of the prospects for at least better investor pricing if not a fractional improvement in rates. The pace of existing homes sales slumped 2.6% in March - its second consecutive monthly decline. The softness in the housing sector is of particular concern because affordability conditions are near record levels. The challenges of stricter lending conditions, onerous appraisal requirements, and investor overlays are preventing the historically low rates from exerting any noticeable influence on demand. Residential real estate remains one of the economy's major soft spots. I think it is astounding that the apparent popular notion currently circulating on Capitol Hill revolves around the idea the housing sector needs nothing more than a little additional government intervention and regulation to get on track again. Excuse my "soap box" moment - I'll step down quickly - but not before mumbling under my breath - "dude, do you really think the thing a drowning man really needs most is another drink of water?"
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
