Morning Report – the beginning of a secular bear market in bonds? 5/31/13

Posted on May 31, 2013 by Brent Nyitray

Vital Statistics:

  Last Change Percent
S&P Futures  1645.7 -7.9 -0.48%
Eurostoxx Index 2781.4 -17.8 -0.64%
Oil (WTI) 92.79 -0.8 -0.88%
LIBOR 0.275 0.001 0.22%
US Dollar Index (DXY) 83.15 0.108 0.13%
10 Year Govt Bond Yield 2.10% -0.01%  
Current Coupon Ginnie Mae TBA 102.6 0.4  
Current Coupon Fannie Mae TBA 101.1 0.1  
RPX Composite Real Estate Index 200.6 0.4  
BankRate 30 Year Fixed Rate Mortgage 3.9    

 

Markets are weaker this morning after personal income and personal spending came in weaker than expected. Bonds and MBS are up small.
 
University of Michigan Consumer Confidence increased to 84.5 from 83.7 the week before.  
 
Goldman believes the bond market sell-off is for real. They are forecasting a 2.5% 10 year by the end of the year. The sell-off has been global, as Japanese Government Bonds, UK Gilts, German Bunds have also been hit. FWIW, Bill Gross of PIMCO called it 3 weeks ago when he tweeted “The secular 30-yr bull market in bonds likely ended 4/29/13” 
 

 

Filed under: Morning Report | 20 Comments »

Morning Report – Fannie Mae comes back to earth 5/30/13

Posted on May 30, 2013 by Brent Nyitray

Vital Statistics

  Last Change Percent
S&P Futures  1652.6 5.6 0.34%
Eurostoxx Index 2807.2 20.6 0.74%
Oil (WTI) 92.59 -0.5 -0.58%
LIBOR 0.275 -0.001 -0.40%
US Dollar Index (DXY) 83.7 0.037 0.04%
10 Year Govt Bond Yield 2.14% 0.02%  
Current Coupon Ginnie Mae TBA 101.8 0.4  
Current Coupon Fannie Mae TBA 100.8 -0.2  
RPX Composite Real Estate Index 200.6 0.4  
BankRate 30 Year Fixed Rate Mortgage 3.94    

 

Markets are higher this morning in spite of a 5.2% sell-off in the Nikkei 225 last night. Q1 GDP was revised downward to 2.4% from 2.5%. Initial Jobless Claims rose to 354,000. Bonds and MBS are down small.
 
Yesterday was the first relatively stable day in the Treasury markets in quite some time, notwithstanding the major sell-off in early Asian trading yesterday morning. Today we are more or less in the same place. 
 
The CFPB has tweaked the Ability to Repay rule a tad, with new guidance for mortgage broker compensation and exempting small lenders that focus on low-income lending. These amendments will take effect Jan 1, 2014.
 
It is tempting to think the the U.S. Treasury yield is being driven by differing interpretations of Bernake’s words. And maybe some of it is. But we are seeing a global sell-off in G7 sovereign debt that started at about the same time.  The US Treasury yield is up 54 basis points since May 1. UK Bonds are up 26 basis points. Japanese Government bond yields are up 31 basis points. That is in spite of a new quantitative easing program by the Bank of Japan – think about that! German Bund yields are up 30 basis points. Everyone started selling off more or less on May 1. My point is that there seems to be more going on in US Treasuries than a simple question over when the Fed is going to start tapering QE. Given the move in world stock markets, it feels like a very big investor (probably a sovereign wealth fund) is doing an asset allocation trade out of G7 debt and into stocks. 
 
Remember Fannie Mae, which was more or less given up for dead? Well, it has rallied about fourteenfold since mid March. It sold off had yesterday, but you can’t deny the move. 30 cents to an intraday high of $5.44. This has been one big speculative toy for the past couple of months, while the big hedge funds are in the prefs. If Fannie Mae survives in some way, shape, or form those bets could pay off. However Fannie Mae is simply sending all of its profits to the government, which is not counting them against money it owes. (They changed the rule last Fall, right before Fannie Mae started turning a profit – what a coincidence). Oh, and before you dismiss it as just another “penny stock” – it sports a market cap of $16.7 billion. Anyway, play in this sandbox at your own risk.
 
Chart:  Fannie Mae (FNMA)
 

 
 

Filed under: Morning Report | Leave a comment »

Morning Report – Foreclosures drop again 5/29/13

Posted on May 29, 2013 by Brent Nyitray

Vital Statistics:

  Last Change Percent
S&P Futures  1646.2 -8.4 -0.51%
Eurostoxx Index 2794.0 -41.9 -1.48%
Oil (WTI) 94.43 -0.6 -0.61%
LIBOR 0.276 0.003 1.10%
US Dollar Index (DXY) 83.58 -0.516 -0.61%
10 Year Govt Bond Yield 2.14% -0.03%  
Current Coupon Ginnie Mae TBA 101.7 0.3  
Current Coupon Fannie Mae TBA 100.6 0.3  
RPX Composite Real Estate Index 200.2 0.0  
BankRate 30 Year Fixed Rate Mortgage 3.88    

 

Bond market volatility is the theme of the day (yet again). The 10-year bond yield jumped to 2.23% this morning in late Asian hours. No real news drove the decline, just the general fear that the Fed will start paring back QE sometime this fall.
 
Lender Processing Services reported that home prices are up 1.4% month-over-month and 7.6% year over year. It does appear that the rally is becoming more broad, as states other than the usual suspects are showing the biggest gains. This time around, Georgia leads the way as Atlanta prices increased 2.6% MOM. Arizona was actually in the bottom 10, indicating that perhaps the big professional-driven rally off the bottom has been played out.
 
CoreLogic reported that foreclosures are down 16% YOY and 1% MOM. 52,000 foreclosures were completed in April 2013. In states like Arizona and California, the year-over-year decline is over 50%. The shadow inventory of homes in some state of foreclosure is 1.1 million, compared to 1.5 million a year ago. The judicial states of FL, IL, NJ, NY, and CT still have some work to do, but the rest of the states have largely completed their foreclosures.
 
The sell-off in bonds has created a massive jump in mortgage rates. Now, as the mortgage REITs hedge their books, we are approaching another wave of selling in TBAs as MBS investors hedge their convexity and REITs de-lever. This is going to push mortgage rates even higher. If rates stay here, we should be best-exing into a 3.5% coupon pretty soon.
 

Filed under: Morning Report | 15 Comments »

Morning Report: Case-Schiller Home Price Index up 10.9% 5/28/13

Posted on May 28, 2013 by Brent Nyitray

Vital Statistics:

 

  Last Change Percent
S&P Futures  1664.4 13.8 0.84%
Eurostoxx Index 2832.8 37.8 1.35%
Oil (WTI) 95.11 1.0 1.02%
LIBOR 0.273 0.000 0.00%
US Dollar Index (DXY) 83.75 0.045 0.05%
10 Year Govt Bond Yield 2.05% 0.04%  
Current Coupon Ginnie Mae TBA 102.8 -0.3  
Current Coupon Fannie Mae TBA 101.4 -0.3  
RPX Composite Real Estate Index 200.2 0.3  
BankRate 30 Year Fixed Rate Mortgage 3.75    

 

Markets are higher after equity markets rally worldwide. Bonds and MBS are down again.
 
The S&P Case-Schiller House Price Index rose 1.12% MOM and 10.87% YOY in March. This is the biggest gain since April 2006. Gains were widely distributed, with Phoenix rising 22.5% and New York rising 2.6%. 
 
Chart:  S&P / Case-Schiller Home Price Index:
 

 
 
Jon Hilsenrath of WSJ discusses the Fed’s expectations management issue. The latest FOMC statement inserted language stating that the Fed was ready to increase or decrease purchases as conditions change. During Bernake’s testimony, he refused to rule out tapering QE by Labor Day. It feels as if the market expectations and the Fed are not in sync at the moment, which leads to interest rate volatility.
 
Investors are rotating out of bonds and into balanced funds. Balanced funds will allocate between stocks and bonds and can trade tactically. This could explain some of the “risk on / risk off” behavior we have been seeing. The net result of this could be greater interest rate volatility going forward. After Ben Bernake’s comments last week about ending QE this fall, we saw massive selling in the Treasury futures market (something like 250 contracts being sold in a couple minutes) as stocks rallied. If interest rate volatility is the theme of the market going forward, it makes sense to lock and not float. 
 
Title Insurer Fidelity National Financial (FNF) is buying outsourcing / data firm Lender Processing Services (LPS) in a $2.9 billion cash and stock deal. 

Filed under: Morning Report | 8 Comments »

Morning Report – New Home Sales 5/24/13

Posted on May 24, 2013 by Brent Nyitray

Vital Statistics:

 

  Last Change Percent
S&P Futures  1641.0 -9.0 -0.55%
Eurostoxx Index 2765.2 -11.6 -0.42%
Oil (WTI) 93.17 -1.1 -1.15%
LIBOR 0.273 0.000 0.00%
US Dollar Index (DXY) 83.71 -0.094 -0.11%
10 Year Govt Bond Yield 2.01% -0.01%  
Current Coupon Ginnie Mae TBA 103.1 0.1  
Current Coupon Fannie Mae TBA 101.9 0.1  
RPX Composite Real Estate Index 200.2 0.3  
BankRate 30 Year Fixed Rate Mortgage 3.77    

 

Markets are lower on no real news. Today will be basically a throw-away as the bond market closes at 1:00 pm and most of the Street will be on the LIE by noon. Bonds and MBS are up small
 
Durable Goods orders increased 3.3% in April. Ex transportation, they increased 1.3%. Good numbers.  That said, the manufacturing sentiment reports out of the various Fed banks have been subdued, to say the least. 
 
New Home Sales jumped to a seasonally adjusted annual rate of 454,000. This is 2.3% above the revised March rate and 29% above last year. The median sales price was $271,600 and the average sales price was $330,800, both big increases, indicating more activity is happening at the high end. Strangely, McMansion builder Toll Brothers’ earnings report was on the weaker side compared to its competitors. 
 
So far, the narrative regarding Bernake’s statements in front of Congress has been that the Fed is considering   tapering QE sometime this summer. My take is that is wrong, but we are seeing bear market behavior in bonds right now. Rallies are brief and quickly sold, while sell-offs seem to gather steam. 

Filed under: Morning Report | 44 Comments »

Morning Report – The Bernank inadvertently whacks the bond market 5/23/13

Posted on May 23, 2013 by Brent Nyitray

Vital Statistics:

  Last Change Percent
S&P Futures  1639.5 -16.1 -0.97%
Eurostoxx Index 2766.1 -68.9 -2.43%
Oil (WTI) 92.66 -1.6 -1.72%
LIBOR 0.273 -0.001 -0.37%
US Dollar Index (DXY) 83.92 -0.433 -0.51%
10 Year Govt Bond Yield 2.00% -0.04%  
Current Coupon Ginnie Mae TBA 103.2 0.2  
Current Coupon Fannie Mae TBA 101.8 0.1  
RPX Composite Real Estate Index 199.5 0.5  
BankRate 30 Year Fixed Rate Mortgage 3.73    

 

Markets are lower again after yesterday’s massive reversal. Initial Jobless Claims came in at 340,000 down 23k from the week before and 5k below street estimates. Bonds are up about six ticks, which is surprising given that the SPUs are down 16.
 
Yesterday’s moves in the stock and bond markets have a lot of people scratching their heads. I’ll give you my explanation:  Yesterday’s reversal came during Bernake’s testimony, which I was listening to in the background. Bernake started his prepared remarks basically saying that the Fed would be guided by data, and noted that they feel like in hindsight, that they stopped QEI and QEII a little too early. As long as inflation remained below their target rate they felt like they had no reason to stop asset purchases. Bonds rallied early and the yield dropped to 1.89%. Then, during the Q&A, one of the questioners tried to pin down Bernake on when they would slow or stop asset purchases. Bernake repeated that the Fed would be guided by the data. When they see a materially better employment market, they will think about tapering. The questioner then asked if that could be before Labor Day. Bernake replied that if the data improves materially, then sure. Bernake’s body language was “well, it is a theoretical possibility that the labor market could improve dramatically over the summer and I am not going to rule anything out.” The bond market however focused on the statement that the Fed could end QE by Labor Day and sold off. Apparently a big asset allocation trade went through right about the same time where someone sold Treasury futures to buy stocks and that exacerbated the move. The S&P 500 turned on a dime about the same time and did a 40 point intraday swing. 
 
The bond market is just heavy, as it has been since it turned on a dime in the first week of May. Any rally is sold. This is traditional bear market behavior, and I don’t know how long it lasts, but until the market feels different, your borrowers are rolling the dice if they are floating. Note Bene: Bear market rallies are fast and furious, so you should expect increased volatility in rates. In both directions. 
 
The National Association of Realtors reported that existing home sales rose to an annualized pace of 4.97 million in April. Total Housing Inventory rose 11.9% at the end of April to 2.16 million units, a 5.2 month supply. Six months’ inventory is considered “balanced.”  The median existing home price increased to 192,800 in April, up 11% from a year ago. One thing to note is that the outsized activity on the West Coast and places like Phoenix is distorting the median price indices. Most of the activity is concentrated in a handful of hot market where prices are rising rapidly after bottoming last year. The rest of the country is not experiencing that at all. Home prices are up in the low / mid single digits elsewhere. 
 
In contrast to the NAR report, the FHFA released its monthly home price index report, which shows prices rose 1.9% in Q1 and are up 6.7% year over year. The FHFA report looks at the prices of houses with mortgages backed by Fannie Mae and Freddie Mac, which means that a lot of the activity on the West Coast is excluded, because it ignores cash transactions. The FHFA report is more of a “central tendency” report.
 

Filed under: Morning Report | 10 Comments »

Morning Report – The Bernank speaks at 10:00 EST 05/22/13

Posted on May 22, 2013 by Brent Nyitray

Vital Statistics:

  Last Change Percent
S&P Futures  1669.5 3.9 0.23%
Eurostoxx Index 2817.3 -4.3 -0.15%
Oil (WTI) 95.92 -0.3 -0.27%
LIBOR 0.274 0.000 -0.13%
US Dollar Index (DXY) 83.91 0.044 0.05%
10 Year Govt Bond Yield 1.93% 0.01%  
Current Coupon Ginnie Mae TBA 104.2 0.1  
Current Coupon Fannie Mae TBA 102.8 0.0  
RPX Composite Real Estate Index 199 0.2  
BankRate 30 Year Fixed Rate Mortgage 3.65    

 

Markets are up again on no real news. Bonds and MBS are more or less flat
 
Mortgage Applications fell 10% last week as the recent rise in interest rates has taken its toll. The refi index was down 12% while the purchase index was down 3%. It appears that the 10 year has found a level here, at least for the short term.
 
McMansion builder Toll Brothers (TOL) reported better than expected earnings this morning. Revenues increased 38%.  Contracts increased 57%. ASPs were up huge – 16%. Backlog was up 69%. Toll’s results more or less mirror what the other homebuilders have reported, although the growth was larger in the builders that focus on starter homes and first move-up buyers. 
 
We had a lot of Fed-speak over the past couple of days. New York Fed President William Dudley said that it will take 3 to 4 months to make a determination over whether the economy is strong enough to stand an end to QE. St. Louis Fed Head James Bullard also said that purchases should continue. The Fed is concerned about the sequester’s effect on the economy, which will mainly be felt over the summer. Finally, the Bernank is scheduled to testify before Congress at 10:00. The minutes of the April 30 meeting will also be released today. 
 
The New York Fed released its mortgage backed securities purchase advice recently. In spite of the hike in interest rates, the MBS purchases stayed the same:  3 million MBS a day, of which the lion’s share is conforming (something like 80%). You would think the Fed would be more aggressive when rates increase and back off when they fall, but that isn’t what they are doing. 
 
It looks like Mel Watt faces an uphill climb to confirmation. The choice is seen as 100% political, while most Republicans think we need a technocrat who understands finance. The fear is that the partisan wrangling and posturing over Watt will poison the well so much that any sort of bipartisan housing bill will be more or less impossible. Principal mods aside, that would probably mean the end of HARP 3.0 which would extend HARP eligibility to late 2009 and 2010 vintages.

Filed under: Morning Report | 25 Comments »

Morning Report – Slow news day 05/21/13

Posted on May 21, 2013 by Brent Nyitray

Vital statistics:

  Last Change Percent
S&P Futures  1664.6 0.0 0.00%
Eurostoxx Index 2811.6 -12.9 -0.46%
Oil (WTI) 96.49 -0.2 -0.23%
LIBOR 0.274 0.001 0.37%
US Dollar Index (DXY) 84.03 0.294 0.35%
10 Year Govt Bond Yield 1.96% 0.00%  
Current Coupon Ginnie Mae TBA 103.7 -0.1  
Current Coupon Fannie Mae TBA 102.3 -0.1  
RPX Composite Real Estate Index 198.8 0.6  
BankRate 30 Year Fixed Rate Mortgage 3.67    

Perfectly flat – the S&P 500 futures that is.  Perfect description of today, with no economic data. Bonds and MBS?  More or less flat as well.

Tangentially related to housing and the mortgage business – the Despot beat earnings.

The Chicago Fed National Activity Index  showed manufacturing activity decelerated in April. The 3 month moving average is more or less flat, indicating we are growing exactly on trend. For once, employment was the bright spot of the report.

Is credit finally starting to loosen up? One clue is found in the Professional Risk Managers’ International Association survey of risk managers. In home delinquencies, the vast majority expect delinquencies to stay the same or fall, but almost 40% expect them to fall. Less credit headaches gives banks the leeway to go out further on the risk curve. Another indication can be found in the latest Ellie Mae Origination Insight Report, where the average FICO score for a closed loan has fallen from 750 in November 2012 to 742 in April. The big question is whether originators are going to be willing to step out of the QM box, or will the landscape continue to be pristine jumbo loans and conforming / ginnie loans?

With the IRS scandal gaining steam, Obama got his “look, a squirrel” gift, at least momentarily. A new Senate report shows Apple’s international arm paid no income taxes to anyone. 

Filed under: Morning Report | 27 Comments »

Morning Report – the week ahead 05/20/13

Posted on May 20, 2013 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1660.1 -2.9 -0.17%
Eurostoxx Index 2806.9 -11.1 -0.39%
Oil (WTI) 95.7 -0.3 -0.33%
LIBOR 0.273 -0.001 -0.18%
US Dollar Index (DXY) 84.01 -0.240 -0.28%
10 Year Govt Bond Yield 1.92% -0.03%
Current Coupon Ginnie Mae TBA 104.2 0.2
Current Coupon Fannie Mae TBA 102.7 0.2
RPX Composite Real Estate Index 198.2 0.3
BankRate 30 Year Fixed Rate Mortgage 3.66

Markets are slightly weaker to start the week on no real news. The Chicago Fed National Activity Index came in at -.53, indicating that manufacturing activity is decelerating. We saw the same thing in the Philly Fed last week. Merger Monday is back with a few new deals. Bonds and MBS are up small

This week is very data-light. The main market-moving event will be the release of the FOMC minutes from the April 30 meeting. The focus will be on the tapering of quantitative easing. We will also get existing home sales  – it will be interesting to see if the lack of inventory is concentrated only in the hot markets like Phoenix and San Francisco, or is it more widespread. New Home sales come out on Thursday – given the good earnings we have seen from the homebuilders, this number should be good. Finally, on Friday we get durable goods. Expect activity to start to tail off after the FOMC minutes. By noon on Friday, most of the street will be on the LIE ahead of the long weekend, so spreads will widen and pricing will be lousy.

Wells has briefly suspended foreclosures after new questions from the OCC. Meanwhile, the payments from the settlements has been slow to arrive.

The bond market bloodbath bumped up borrowing rates quite quickly. After bottoming out at 3.4% in early May, the average 30 year fixed rate mortgage is 3.66%. That is a big move in a short period of time. In times of excessive volatility, it makes more sense to lock than float. LOs tell your customers they are basically speculating on interest rates if they choose to float.

Filed under: Morning Report | 14 Comments »

Morning Report – No we are not in another housing bubble 05/17/13

Posted on May 17, 2013 by Brent Nyitray

Vital Statistics: 

  Last Change Percent
S&P Futures  1655.5 7.4 0.45%
Eurostoxx Index 2817.6 10.9 0.39%
Oil (WTI) 95.88 0.7 0.76%
LIBOR 0.274 -0.001 -0.18%
US Dollar Index (DXY) 84.29 0.700 0.84%
10 Year Govt Bond Yield 1.90% 0.02%  
Current Coupon Ginnie Mae TBA 104.7 -0.3  
Current Coupon Fannie Mae TBA 103 -0.1  
RPX Composite Real Estate Index 198.2 0.3  
BankRate 30 Year Fixed Rate Mortgage 3.6    

Markets are stronger this morning on good economic data. The University of Michigan Consumer Confidence index rose to 83.7, a post-bubble high and better than expected. Leading Economic Indicators increased .6%, which was better than expected. These should normally not be market-moving indices, but lately stocks can do no wrong and bonds can do no right. The market seems to be convinced that the Fed can stick the landing and end QE without any major hiccups. 

The CoreLogic / Case-Schiller Q412 report is out. House prices increased 7.3% nationwide in 2012. They are forecasting prices to rise 2.5% in 2013 as the market broadens out from the red-hot Western markets like San Francisco and Phoenix. They see a 5-year annualized trend growth of 3.9%. The areas with the largest price gains: Phoenix (+23,8%), San Jose (+17%), Detroit (+ 16.7%), Miami (+13.5%) and Lost Wages (+13.4%). The biggest declines were in Long Island (-4.3%), Virginia Beach (-2%), Richmond (-1.5%), Philthy (-1.3%) and Birmingham (-1.3%). They do note that the fast-rebounding markets could hit an air pocket as professional investor demand wanes.

They do not see evidence of a new housing bubble. I actually find it humorous that a small rally off the bottom could be considered a “bubble.” Bubbles are rare things and are based on an idea that an asset price cannot go down. We saw that mentality during the late 90s – “Buy quality companies and hold them for the long term. Stocks always go up in the long term. The biggest risk is not being fully invested” People wrote books like Dow 40,000. Similarly, during the real estate bubble, people thought prices could never fall. People who had no experience in real estate were buying “Flipping Houses for Dummies.” Nobody that experienced the stock market bubble or the real estate bubble is going to believe that these asset prices cannot fall. There may be another stock or real estate bubble, but we won’t see it. Maybe our grandkids will.

It was noted at the MBA Secondary conference that private label spreads were widening. We finally see evidence of this with Redwood’s latest private label deal. They just sold $424 million of bonds with the senior tranches priced to yield 2.82%, a spread of 190 basis points over swaps. In January, similar deals were priced at 97 bps over swaps. $5.5 billion of private label deals have been done so far this year, as compared to $3.5 billion for all of 2012. That said, during the bubble, $1.1 trillion of PL securities were issued in one year, so we are still a long way from re-living the salad days of big real estate finance.

The House is holding a hearing this morning on the IRS scandal. Whether this turns into another Watergate or not, the President’s political capital is waning quickly. The net effect could be that not much more happens in Washington for the rest of his term. For us, that means replacing FHFA Chief Ed DeMarco with Mel Watt is going to be an even tougher sell, and principal mods for conforming loans / extension of HARP eligibility dates are become less of a sure thing.

Filed under: Morning Report | 25 Comments »

« Previous Page — Next Page »