Daily Commentary by Larry Baer: Uncle
Sam will be in the credit markets looking to auction off $29 billion of 7-year
notes today. The auction will conclude
at 1:00 p.m. ET. Softer-than-expected
demand for Tuesday's 2-year note offering and yesterday's 5-year note tender
may cause investors to bid less aggressively at today's auction. If so, look for this event to put some slight
upward pressure on mortgage interest rates in the second-half of the trading
day.
As you are probably aware, the Supreme Court
issued a ruling earlier today upholding a key component of the Affordable Care
Act (more informally know as "ObamaCare") deeming it within
Congressional powers to require every American to pay a healthcare
"tax." The decision was a
surprise of sorts, and as I write, mortgage investors are still collectively
scratching their heads as they try to determine what, if any, the longer-term
impact of the decision will have on the credit markets.
The modest rally in the mortgage market so
far today is almost exclusively driven by a rather weak
"flight-to-quality" shift of capital out of the stock markets and
into the safe-haven of Treasury debt obligations and agency eligible mortgage-backed
securities.
In other news of the day -- the Commerce
Department confirmed the economy grew at a 1.9% pace during the first-three
months of the year, but the mix of growth was not encouraging for the current
quarter. A separate report showed the number
of Americans filing new claims for jobless benefits fell 6,000 last week. Jobless claims have barely moved since April
and the lack of improvement suggests the labor market has yet to find any
meaningful traction. Mortgage investors
took a passing glance at today's collective body of macro-economic data -- and
gave the whole thing nothing but a disinterested yawn.
I continue to believe trading activity in the
stock markets will likely be the strongest single determinant of mortgage
interest rate direction over the course of the remaining three business
days. Lower stock prices will tend to
support steady to lower mortgage interest rates while higher stock prices will
probably drag mortgage interest rates fractionally higher.
I know I may sound like a broken record here
- but my models are currently indicating the stock markets may be poised to
begin a short-lived but rather powerful counter-trend rally, probably not later
than today or tomorrow. (I will consider
this forecast invalid should the Dow close meaningfully below its June 26th
low of 12,452 this week). It is unlikely
a rally in the stock markets, should it actually develop, will prove strong
enough to meaningfully eclipse the markets recent highs (12,898 for the Dow and
4459 for the Nasdaq) - but any noticeable improvement in the equities markets
will probably make it difficult, if not impossible, for mortgage interest rates
to move notably lower in the near-term.
THE
MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
