Primary Pulse 11/24/14

Good evening,

 

Ladies and Gentlemen, today we have reached all-time high prices / low rates for this year!

 

Holiday Season Kicks Off

by Craig Dismuke

This week is a holiday-shortened week as the country celebrates Thanksgiving. The bond market will be closed on Thursday as a result. But despite the short week, there are a plethora of data releases scheduled. Today’s calendar brings the Chicago Fed National Activity Index which is an aggregation of 85 different economic variables into one monthly metric that has been trending fractionally higher, of late. We will also see the second Markit services report for November – an index which is fairly new in the U.S. but which economists use to forecast the ISM Non-Manufacturing index. Finally, the Dallas Fed will release its regional manufacturing activity index. Perhaps most important for the bond markets, this week will bring Treasury supply and today kicks off with an auction of $28 billion 2-year notes.

Later in the week, we will get two home price reports, new and pending home sales, two consumer confidence reports, PCE inflation, durable goods orders, and the first revision to the 3Q GDP report. However, the biggest news to watch may be the pace of sales as the holiday season kicks off. All indicators point to this being a very good holiday season. As an example, Gallup surveys consumers about their expected holiday expenditures. This year’s survey shows that the average household is expecting to spend $781. That is an increase of 11% and points to retail sales for the holiday months being up 7% year-over-year. The real question for corporate profits may be the price at which they get business done. Retailers are already discounting merchandise and have conditioned consumers to expect such. 

Overnight, Asian stock markets are up after the PBOC announced last Friday that they were cutting lending and deposit rates to stem slowing inflation. Moreover, they are reportedly prepared to do more if necessary. And again, after Draghi insisted that the ECB was prepared to begin buying more bonds, the euro is down 1.2% since his comments Friday and Eurozone stocks are still rallying. Amazingly enough, bond prices remain firm also. The German 10-year Bund is now trading at 0.77% while the French 10-year is at 1.11%. In the U.S., stock futures are green this morning and bond prices appear firm. Easing monetary policy is like a rising tide that lifts all ships. 

Imports of oil from OPEC nations fell to their lowest levels in 30 years in August. According to the FT, “US imports of crude oil from Opec nations is at its lowest level in almost 30 years, underlining the impact of the shale revolution on global trade flows. ... The lower dependence on imports from the cartel ... comes amid advances in hydraulic fracturing that has propelled domestic US production to about 9m barrels a day - the highest level since the mid-1980s. ... In August, Opec's share of US crude oil imports dropped to 40 per cent - accounting for 2.9m b/d - the lowest since May 1985 ... At its 1976 peak it stood at about 88 per cent.”

 

 

Capital Markets

Primary Residential Mortgage, Inc.

1480 North 2200 West| Salt Lake City|  Utah| 84116

Toll Free 1.800.255.2792

www.primaryresidentialmortgage.com capitalmarkets@primeres.com

 

o         Tick       1/32 or .03125

o         MBS       Mortgage Backed Security

o         TBA       To Be Announced (MBS with unknown future delivery)

o         Spec      Specified Pool

 

The contents in this memo are not an endorsement of any financial products or investments. PRMI assumes no liability, and will not make any recommendations with respect to the purchase or sale of any investment security or its derivatives.

Economic Calendar

Date/Time(Central)	Indicator	Period	Est.	Actual	Prior	Revised
11/25/2014 7:30 AM	GDP QoQ (Annualized)	3Q S	3.3%		3.5%
11/25/2014 7:30 AM	Personal Consumption	3Q S	1.9%		1.8%
11/25/2014 8:00 AM	S&P/CaseShiller Comp-20 (YoY)	SEP	4.60%		5.57%
11/25/2014 8:00 AM	S&P/CaseShiller US HPI	SEP	--		5.10%
11/25/2014 9:00 AM	Consumer Confidence	NOV	96.0		94.5
11/26/2014 6:00 AM	MBA Mortgage Apps.	21-Nov	--		4.9%
11/26/2014 7:30 AM	Durable Goods Orders	OCT	-0.6%		-1.3%	-1.1%
11/26/2014 7:30 AM	Initial Jobless Claims	22-Nov	287K		291K
11/26/2014 7:30 AM	Continuing Jobless Claims	15-Nov	2360K		2330K
11/26/2014 7:30 AM	Personal Income	OCT	0.4%		0.2%
11/26/2014 7:30 AM	Personal Spending	OCT	0.3%		-0.2%
11/26/2014 7:30 AM	PCE Deflator (YoY)	OCT	1.4%		1.4%
11/26/2014 7:30 AM	PCE Core (MoM)	OCT	0.2%		0.1%
11/26/2014 7:30 AM	PCE Core (YoY)	OCT	1.5%		1.5%
11/26/2014 8:45 AM	Chicago Purchasing Manager	NOV	63.0		66.2
11/26/2014 8:55 AM	U of Mich. Consumer Confidence	NOV F	90.0		89.4
11/26/2014 9:00 AM	New Home Sales	OCT	470K		467K
11/26/2014 9:00 AM	New Home Sales (MoM)	OCT	0.7%		0.2%

Primary Pulse 11/21/2014

Good evening and happy Friday,

 

Mortgages are starting to get exciting again, the project to update our pricing engine is getting close to being complete thus I’ll have more time to focus on the Pulse!  1.5 ticks away from reaching this year’s all-time highs achieved 10/15 and only 19 ticks away from the high pricing set April 5^th, 2013.

 

Treasuries Gain Amid Stimulus by Central Banks in Europe, China

2014-11-21 20:30:39.887 GMT

 

 

By Daniel Kruger

     Nov. 21 (Bloomberg) -- Treasuries rose for a second day with central banks in Europe and China increasing stimulus measures amid signs of slowing growth, raising the relative attractiveness of higher-yielding U.S. government debt.

     The difference in yields between benchmark 10-year Treasury notes and comparable German bunds is 1.55 percentage points.

European Central Bank President Mario Draghi said officials would expand debt purchases if the inflation outlook weakens.

Sovereign-bond yields in France, Italy and Ireland reached record lows. China cut benchmark interest rates for the first time since July 2012.

     “If you look at the spread differential between 10-year bunds and Treasuries, we’ve gotten back to extreme levels,”

said Larry Milstein, managing director in New York of government-debt trading at R.W. Pressprich & Co. “That’s really what’s pulling us lower in yield.”

     The U.S. 10-year yield fell two basis points, or 0.02 percentage point, to 2.31 percent at 3:28 p.m. in New York, according to Bloomberg Bond Trader data. The price of the 2.25 percent note due in November 2024 gained 7/32, or $2.19 per

$1,000 face amount, to 99 14/32. The yield, which was little changed on the week, has climbed from 2.22 percent a month ago.

     The 30-year bond yield decreased three basis points to 3.02 percent. It lost three basis points on the week.

 

                          Yield Spread

 

     U.S. 10-year notes’ extra yield today versus their German counterparts compared with 1.33 percentage points a month ago.

The spread reached 1.56 percentage points on Nov. 12, the most since Sept. 17.

     German 10-year bund yields reached 0.766 percent today after falling to a record-low 0.715 percent on Oct. 16. French 10-year yields touched 1.109 percent, and their Irish counterparts fell to as low as 1.478 percent. Italian 10-year yields dropped to as low as 2.207 percent.

     As central-bank officials in Europe and Asia embrace stimulus to spur slumping economies, Federal Reserve policy makers are discussing when to raise interest rates from virtually zero next year for the first time since 2006. The Fed concluded a program of bond purchases last month, citing economic improvement.

     The ECB began buying asset-backed securities today, a spokesman said.

     Draghi said at the European Banking Congress in Frankfurt that policy makers “will do what we must to raise inflation and inflation expectations as fast as possible, as our price stability mandate requires of us.” Euro-region bond yields dropped amid speculation the ECB will add purchases of sovereign debt to its stimulus program.

 

                          Chinese Rates

 

     The People’s Bank of China reduced its one-year lending rate by 0.4 percentage point to 5.6 percent, while the one-year deposit rate was lowered by 0.25 percentage point to 2.75 percent. The central bank had said selective easing would be enough to revive the world’s second-largest economy and had pumped 769.5 billion yuan ($126 billion) into money markets since September.

     The Bank of Japan bolstered its already-record stimulus on Oct. 31, pledging to increase bond holdings at an annual pace of

80 trillion yen ($680 billion).

     “Central banks are still trying to orchestrate economic growth,” said Thomas Tucci, managing director and head of Treasury trading in New York at CIBC World Markets Corp.

 

                         Greater Demand

 

     Treasuries advanced earlier amid speculation potential new rules on Fed regulation of banks’ commodities business would spur demand for U.S. debt. In testimony before the Senate, Fed Governor Daniel Tarullo said trading physical commodities poses “unique risks” to banks and that regulators should examine additional capital requirements and other policies. The new rules are to be proposed early next year.

     “Any time you’re talking about increased capital requirements, it implies greater structural demand for Treasuries,” said Thomas Simons, a government-debt economist in New York at Jefferies LLC, one of the 22 primary dealers that are obligated to bid U.S. debt sales. “It’s pretty black and white.”

     The Department of Commerce probably will revise its calculation of third-quarter growth in U.S. gross domestic product to 3.3 percent, from the 3.5 percent that it estimated in October, economists surveyed by Bloomberg forecast before data due Nov. 25.

     By contrast, the euro-area economy grew 0.8 percent in the third quarter from the year before.

 

                          Low Inflation

 

     The U.S. economy is expanding without spurring inflation.

The Fed’s preferred measure of prices, a gauge tied to personal consumption expenditures, has held below policy makers’ 2 percent target for more than two years. It was at 1.4 percent in September. The consumer price index rose 1.7 percent in October from a year earlier, a report showed yesterday, unchanged from September.

     The gap between yields on 10-year notes and comparable Treasury Inflation Protected Securities, an indicator of trader expectations for consumer prices over the life of the debt called the break-even rate, narrowed to as little as 1.83 percentage points yesterday. That was the least since June 2013.

The measure, which reached 2.31 percentage points in January, was at 1.88 percentage points today.

     The U.S. is scheduled to sell $28 billion of two-year Treasuries on Nov. 24, $13 billion of two-year floating-rate notes and $35 billion of five-year securities on Nov. 25 and $29 billion of seven-year debt Nov. 26.

 

Might be the best time to buy?

Applications for new home purchases jump 8% in October

Increase heavy in higher-priced homes

Trey Garrison

November 13, 2014 10:34AM

0 Comments

MBAmortgage lendingpurchase applications

The Mortgage Bankers Association Builder Application Survey data for October 2014 shows mortgage applications for new home purchases increased by 8% relative to the previous month. 

This change does not include any adjustment for typical seasonal patterns.

By product type, conventional loans composed 68.2% of loan applications, FHA loans composed 16.2%, RHS/USDA loans composed 1.5% and VA loans composed 14.2%. The average loan size of new homes increased from $298,274 in September to $300,289 in October.

“Applications for new home purchases picked up in October, particularly for higher-priced homes,” said Mike Fratantoni, MBA’s chief economist.  “The continued improvement in the job market and still low mortgage rates are supporting the upper levels of the purchase market, while the tight credit environment continues to constrain sales at the entry level.”

The MBA estimates new single-family home sales were running at a seasonally adjusted annual rate of 461,000 units in October 2014, based on data from the BAS. 

The new home sales estimate is derived using mortgage application information from the BAS, as well as assumptions regarding market coverage and other factors.  

The seasonally adjusted estimate for October is an increase of 8.5% from the September pace of 425,000 units. On an unadjusted basis, the MBA estimates that there were 36,000 new home sales in October 2014, an increase of 12.5% from 32,000 new home sales in September.  

Primary Pulse 11/17/2014

Good evening,

 

Mortgages continue to stay above 106:00 which is a great indicator of possible lower rates in the future.  Special attention should be paid to this week’s FOMC minutes release.  This sole indicator can move markets.

 

Commentary has been minimal the last couple of weeks as we focus on updating our systems to migrate from Datatrac to Encompass 360, please be patient.

 

Inflation Expectations Dropping; Japan Contracting

by Craig Dismuke

This week will bring a handful of important data releases. The Empire Fed Manufacturing index rose from 6.17 to 10.16 for the month of November. This was a smaller rebound than expected after the index dropped from 27.54 in September. October’s Industrial Production report will be released at 8:15 a.m. CT and is expected to show lackluster growth in overall output and manufacturing output. Manufacturing hours worked declined during the month. 

There will be three housing report including the November homebuilder confidence report (Tue), October housing starts and building permits (Wed), and October existing home sales (Thu). The housing data has flat-lined since the mild increase in mortgage rates last spring and is certainly complicating the Fed’s decision on raising short-term rates. Also complicating the decision is the expected drop in inflation through year-end. The October CPI report is due out this week and is expected to show a drop in headline CPI from 1.7% YoY to 1.6%. Gasoline prices fell 3% in October which will help push price gains lower, but the coming impact will be even more substantial. Gas prices are already down 6% in November and are likely to result in headline CPI falling as low as 1.2% by year-end. However, the Fed has already weighed in on the lower oil prices and stronger Dollar saying they believe the impact will be temporary. Adding to the concern, however, last week’s University of Michigan Consumer Confidence report showed 5-year inflation expectations falling from 2.8% to 2.6%, the lowest reading since 2009. While the Fed uses market-based indicators for inflation, they also lean heavily on consumer inflation expectations (see Chart of the Day). 

What will likely prove to be the most market-moving release of the week will be the FOMC’s October Meeting Minutes. Recall that the Fed was expected to slow down their crawl towards policy normalization because of the lower inflation expectations. Instead, they surprised the markets in their Official Statement by acknowledging that the slack in the labor market was diminishing and by dismissing disinflation concerns. It will be interesting to see how much momentum the hawkish argument for raising rates is getting. Clearly, there has been a slight shift in the center of the Committee with two hawks dissenting to the September Statement and one dove dissenting to the October Statement. 

Bonds caught a bit of a bid last Friday after the consumer survey showed lower inflation expectations. Adding to the risk-off tone this morning, Japan’s economy fell into a recession once again with 3Q GDP contracting another 1.6%. The two quarters of contraction came after Abe’s sales tax increase last April from 5% to 8% stifled capital investment, inventory building, and retail sales. This puts the second leg of the tax increase to 10% in jeopardy which was scheduled to go into effect this month.

 

 

Capital Markets

Primary Residential Mortgage, Inc.

1480 North 2200 West| Salt Lake City|  Utah| 84116

Toll Free 1.800.255.2792

www.primaryresidentialmortgage.com capitalmarkets@primeres.com

 

o         Tick       1/32 or .03125

o         MBS       Mortgage Backed Security

o         TBA       To Be Announced (MBS with unknown future delivery)

o         Spec      Specified Pool

 

The contents in this memo are not an endorsement of any financial products or investments. PRMI assumes no liability, and will not make any recommendations with respect to the purchase or sale of any investment security or its derivatives.

Economic Calendar

Date/Time(Central)	Indicator	Period	Est.	Actual	Prior	Revised
11/17/2014 7:30 AM	Empire Manf.	NOV	12.00	10.16	6.17
11/17/2014 8:15 AM	Industrial Production	OCT	0.2%		1.0%
11/17/2014 8:15 AM	Capacity Utilization	OCT	79.3%		79.3%
11/18/2014 7:30 AM	PPI Final Demand (MoM)	OCT	-0.1%		-0.1%
11/18/2014 7:30 AM	PPI (MoM) Ex. Food & Energy	OCT	0.1%		0.0%
11/18/2014 7:30 AM	PPI Final Demand (YoY)	OCT	1.3%		1.6%
11/18/2014 7:30 AM	PPI (YoY) Ex. Food & Energy	OCT	1.5%		1.6%
11/19/2014 6:00 AM	MBA Mortgage Apps.	14-Nov			-0.9%
11/19/2014 7:30 AM	Housing Starts	OCT	1025K		1017K
11/19/2014 7:30 AM	Building Permits	OCT	1040K		1018K	1031K
11/19/2014 1:00 PM	FOMC Minutes Released	OCT
11/20/2014 7:30 AM	Consumer Price Index (MoM)	OCT	-0.1%		0.1%
11/20/2014 7:30 AM	CPI (MoM) Ex. Food & Energy	OCT	0.1%		0.1%
11/20/2014 7:30 AM	Consumer Price Index (YoY)	OCT	1.6%		1.7%
11/20/2014 7:30 AM	CPI (YoY) Ex. Food & Energy	OCT	1.8%		1.7%
11/20/2014 7:30 AM	Initial Jobless Claims	15-Nov	280K		290K
11/20/2014 7:30 AM	Continuing Jobless Claims	8-Nov			2392K
11/20/2014 9:00 AM	Philadelphia Fed Index	NOV	18.0		20.7
11/20/2014 9:00 AM	Existing Home Sales	OCT	5.15M		5.17M
11/20/2014 9:00 AM	Existing Home Sales (MoM)	OCT	-0.4%		2.4%
11/20/2014 9:00 AM	Leading Indicators	OCT	0.6%		0.8%