March 9th, 2011 6:07 PM by Lehel S.
Treasuries and mortgages started stronger this morning after two days of declining prices. At 9:00 the 10 yr up 6/32 at 3.53% -2 bp, mortgage prices on 30 yr conventionals +7/32 (.22 bp). Crude oil trading higher this morning as is gold; the stock indexes at 9:00 were generally unchanged. Nothing technically significant in the price gains this morning, the bellwether 10 yr note still confined to its tight range between 3.60% and 3.45%.
Mortgage applications increased 15.5% from one week earlier, according to data from the Mortgage Bankers Association's Weekly Mortgage Applications Survey for the week ending March 4, 2011. The Market Composite Index, a measure of mortgage loan application volume, increased 15.5% on a seasonally adjusted basis from one week earlier. . The previous week did not include a holiday adjustment for Presidents' Day. The Refinance Index increased 17.2% from the previous week and was the highest Refinance Index observed since the week ending January 14, 2011. The seasonally adjusted Purchase Index increased 12.5% from one week earlier and was the highest Purchase Index recorded this year. The four week moving average for the seasonally adjusted Market Index is up 2.7%. The four week moving average is up 1.2% for the seasonally adjusted Purchase Index, while this average is up 3.6% for the Refinance Index. The refinance share of mortgage activity increased to 65.5% of total applications from 64.9% the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 6.0% from 5.5% of total applications from the previous week. The average contract interest rate for 30-year fixed-rate mortgages increased to 4.93% from 4.84%, with points decreasing to 0.87 from 1.29 (including the origination fee) for 80% loans. The average contract interest rate for 15-year fixed-rate mortgages remained unchanged at 4.17%, with points increasing to 1.15 from 1.07 (including the origination fee) for 80% loans.
Markets still struggling with the potential impact on the economy from rising oil prices. The obvious questions; will oil prices continue to increase and if so how will that impact the fragile economic recovery? Analysts from some of the big brokerages are increasing their expectations that oil will continue to increase, possibly by as much as another $25.00/barrel. If that happens the economic recovery may stall with consumers unable to continue increasing discretionary spending. The equity markets would lose the recent gains and the bond market would once again see money flow back and out of stocks. Presently the interest rate markets are stuck in their respective narrow ranges while the turmoil in the Mideast and in Libya is very fluid and can change quickly. The equity market is vulnerable to continuing selling while the rate markets hold steady.
At 10:00, a few minutes ago, Jan wholesale inventories, the only data today, expected to be up 0.9% were up 1.1%; Dec revised from +1.0% to +1.3%. Sales were up 3.4% with markets looking for +0.5%; Dec sales revised to +1.1% frm +0.4%. The inventory to sales ratio at 1.13 month from 1.15 months in Dec. No reaction to the report.
At 1:00 this afternoon Treasury will sell $21B of 10 yr notes, re-opening the 10 yr note issued last month. Yesterday's 3 yr note went well with good demand.
Crude oil up a little this morning, gold up and stock indexes lower. The bond and mortgage markets benefiting but for three weeks the long end of the yield curve including mortgage rates have not changed appreciably, chopping back and forth with no trend direction. We continue our slightly negative outlook for interest rates; as long as the 10 yr treasury holds above 3.40% (currently 3.53%) we are unwilling to get involved by holding rate locks. There is little to gain but also there is little to lose given the tight trading range. As long as the choppiness continues we suggest caution.