Daily Commentary by Larry Baer: Uncle Sam will be splashing around in the
credit market this afternoon looking to borrow $35 billion in the form of
5-year notes. The yield on this security now roughly equals its late
December high and has not been higher since April 2012. There is
every reason to expect demand from both foreign and domestic investors to be
solid - a condition that should help curtail the current upward pressure on
mortgage interest rates.
A
stronger-than-expected auction this afternoon will likely be broadly
interpreted by many analysts as a sign market participants are not convinced
the economy is on a sustainable trajectory to higher growth levels - a view
likely to exert selling pressure on stocks to the benefit of steady to perhaps
fractionally lower mortgage interest rates. The auction will conclude at
1:00 p.m. ET and I'll post the auction result on my website as soon as possible
once the final gavel falls.
The Federal Open
Market Committee began two day's of monetary policy deliberations earlier this
morning. The committee is broadly anticipated to maintain the status quo
when they release their post-meeting statement tomorrow afternoon at 2:15 p.m.
ET. The Fed will not change its policy targets, interest rates, or
monthly assets purchases - including their purchases of mortgage-backed
securities. The statement will likely include only minor tweaks and the
whole thing will likely prove to be a nonevent with respect to its impact on
the current trend trajectory of mortgage interest rates.
I realize I may
sound like a broken record to many but I think it is worth reinforcing my
previous references to the fact my models are suggesting a disconnect exists
between the reality of sputtering economic data,
"kick-the-can-down-the-road" politics and current stock market
levels. There seems to be broad based complacency related to this
apparent mismatch. Even at the risk of being found guilty of howling at
the moon - I have to say the probabilities appear to be very high the stock
markets are vulnerable to a significant sell-off sooner rather than
later. If this assessment proves accurate, the flow of capital
fleeing the crumbling stock markets for the relative safety of Treasury debt
obligations and agency eligible mortgage-backed securities will soon resume --
providing solid support for the prospects of steady to perhaps fractionally
lower mortgage interest rates. I don't think there is much more
than two or three weeks left before my projections here are either proven
largely, if not totally inaccurate - or dead-on the money. Heads up.
THE
MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
