September 21st, 2011 7:41 AM by Lehel S.
Tedious open this morning; the rate markets flat and the early action in the stock index trade had the indexes about unchanged. The bond and mortgage markets tried to hold slight gains but at 9:00 were slipping. The mortgage market continues to look weaker than treasuries, that has been the case for a week now. FHFA swinging a big axe, adding fees and suing every company it can is causing lenders to price defensively, not pricing to the MBS market but pricing lower.
Today is all about the Fed and what the FOMC policy statement will say regarding another potential Fed easing move. Known as "Operation Twist", many are expecting the Fed to announce it will begin selling its short dated notes while increasing purchases of 5s, 10s and 30s. Until 2:15 markets are likely to be generally unchanged. Not sure whether or not Operation Twist has been built into present yields at the long end (10s and MBSs); markets not even sure what the Fed will say in the policy statement. This afternoon after the 2:15 announcement markets will likely be volatile.
The soap opera known as the Greek bailout continues with nothing accomplished----again. Officials said they need to return to Greece to complete a review of the economy, for two days the IMF and EU people have been meeting with Greece leaders yet still haven't determined whether Greece has met the austerity plans that were a condition for getting more financial assistance to avoid default. Meanwhile Europe's economy is slipping quickly and the US markets are held captive to every syllable coming from the EU, IMF and Greek political leaders.
Weekly Mortgage Applications Survey for the week ending September 16, 2011. The Market Composite Index, a measure of mortgage loan application volume, increased 0.6% on a seasonally adjusted basis from one week earlier. The Refinance Index increased 2.2% from the previous week. The seasonally adjusted Purchase Index decreased 4.7% from one week earlier. The four week moving average for the seasonally adjusted Market Index is down 3.15%. The four week moving average is down 0.54% for the seasonally adjusted Purchase Index, while this average is down 3.91% for the Refinance Index. The refinance share of mortgage activity increased to 78.3% of total applications from 76.8% the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 6.7% from 7.3% of total applications from the previous week. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) remained unchanged at 4.29%, with points increasing to 0.41 from 0.38 (including the origination fee) for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (> $417,500) decreased to 4.55% from 4.57%, with points increasing to 0.46 from 0.42 (including the origination fee) for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA decreased to 4.07% from 4.08%, with points increasing to 0.51 from 0.48 (including the origination fee) for 80% loans. The average contract interest rate for 15-year fixed-rate mortgages decreased to 3.46% from 3.52%, with points increasing to 0.45 from 0.38 (including the origination fee) for 80% loans.
At 9:30 the DJIA opened a little weaker but quickly turned slightly positive; the bond and mortgage markets marching to what the equity markets do; the two markets remained tied together as traders have almost total control of both markets these days. Normal type investors are not investing much. It has become one of the easiest trades these days; stock indexes weaker, buy the 10 yr, stock indexes better sell the 10 yr-----and vice versa.
The only data today; at 10:00 August existing home sales, expected up 1.4%, increased 7.7% to 5.03 mil. The median sales price $168,300 -5.1% frm August 2010, 31% of the sales were distressed sales, based on sales in August there is an 8.5 month supply, the inventory level declined 3.0%. No reaction to the data in the bond and mortgage markets, but the stock indexes did improve on the better sales.
US financial markets will likely stay generally flat until 2:15 when the FOMC policy statement is released. Based on what the statement says markets will likely be somewhat volatile after that.