Daily Commentary: Credit
market participants are approaching the 1:00 p.m. ET conclusion of the Treasury
Department's auction of $21 billion of 10-year notes very cautiously. Yesterday's sale of $32 billion of 3-year
notes did not meet the expected demand so there is concern the 10-year note
sale may not fare well either. If so, a
weakly bid 10-year note auction will likely exert some noticeable upward
pressure on mortgage interest rates before the day is over. I'll post the auction results on my website
as soon as possible once the final gavel falls.
This morning's battery of macro-economic news
showed U.S. retail sales fell for a second straight month in May and wholesale
prices dropped by the most in three years.
Overall retail sales fell 0.2%.
Excluding autos, the pace of sales at the nation's retailers was lower
by 0.4% on a month-over-month basis.
Separately, the Labor Department said its producer price index dropped
1.0% as energy costs slumped. The more
important core rate, a value that excludes volatile food and energy costs,
edged up an expected 0.2% during the month of May. Mortgage investors viewed today's round of
data as providing more evidence of a downshift in the economy - a condition
supportive of the prospects for steady to perhaps fractionally lower mortgage
interest rates.
Speaking of mortgage rates - as they do every
Wednesday -- the Mortgage Bankers of America released their Mortgage
Application Survey for the week ended June 8th. The composite index spiked 18% higher --
driven in large part by a 19.2% jump in refinance demand. The purchase index gained 12.8%, breaking a
four-week losing streak. Refinance
applications accounted for 78.8% of all applications taken during the week and
they account for 77.9% of the prospective loan volume. The contract rate for 30-year fixed-rate
conforming mortgages finished at 3.88%, up 1 basis-point from the prior week,
down 8 basis-points from the month ago mark and down 70 basis-points
year-over-year.
My timing algorithms continue to suggest
mortgage interest rates will probably begin a more sustained move to higher
levels sometime between June 21st and the end of July. For the time being investors will be
reluctant to begin aggressively reducing their safe-haven investments in dollar
denominated assets like U.S. Treasury debt obligations and agency eligible
mortgage-backed securities before results of the Greek elections on June 17th
are known and the Fed has concluded its Open Market Committee meeting on June
20th. Until then, expect
mortgage interest rates here at home to chop nervously back and worth in a
relatively tight range.
THE
MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
