Rate snapshot: Continued volatility in mortgage bond market

by MPA19 Aug 2014


The bond and mortgage markets started nicely this morning after the beat down yesterday; continued volatility as we warned would characterize trade this week.
Two reports at 8:30; July CPI +0.1% for both the overall and the core rate, yr/yr overall CPI +2.0%, yr/yr core +1.9% both about what had been expected. The increase ion CPI, the slowest pace in five years. As expected, there is no evidence of inflation beginning to infect prices. Where prices are increasing rapidly; food, prices increased 0.4%, energy costs declined 0.3%. The CPI is the broadest of three price gauges from the Labor Department because it includes all goods and services. About 60% of the index covers prices consumers pay for services from medical visits to airline fares, movie tickets and rents.
The July housing starts and permits were a lot stronger than forecasts; starts expected to have increased 7.3% were double that at +15.7% to 1.09 mil (964K expected); June starts also better than originally reported at 945K frm 893K. Starts the strongest in eight months. July permits +8.1% also about double what was expected (+4.8%) to 1.05 mil (963K was expected); permits the best since last November. Yesterday the August NAHB housing market index ncreased to 55 frm 53 in July, adding to the starts today suggest housing is gaining some momentum. Mortgage rates have declined, maybe that is the reason starts increased so much; in Jan 30 yr mortgage rates at 4.53%, now 4.12% according to data frm Freddie.
Ukraine/Russia: the convoy of humanitarian supplies sent by Russia is still at the border. The Red Cross says it won't inspect the trucks until it receives security guarantees amid the heavy fighting. Both sides now blaming the other or the delay getting the aid to those in need. Nothing has changed in the region in any material way. German Chancellor Angela Merkel will travel to Kiev on Saturday to meet with President Petro Poroshenko. Putin’s approval rating in Russia is at an all-time high at 80%, prior to the move to take Crimea and start the Ukraine fighting his approval was at about 50%. He obviously has the strong support of Russians so there is no backlash that could force his hand. He wants Ukraine, the Russian citizens want Ukraine; essentially Russia want a win.
Iraq; quiet today; nothing brewing for the moment. Israel also with little new news to roil markets. In Pakistan; protesters edged closer to an all-out confrontation with Pakistan's government Tuesday, ahead of a planned march on parliament aimed at toppling Prime Minister Nawaz Sharif. Observers fear that any violence could provoke intervention from Pakistan's army. The government has said that it has deployed 30,000 police, paramilitary and army to protect the capital. The military has declined to comment on the protests. The situation isn’t yet impacting markets, and it may not, but the country has nuclear weapons, if the protests force the army into the uneasiness it will become another geo-political event to track.
At 9:30 the DJIA opened +47, NASDAQ +6, S&P _4; 10 yr 2.37% -1 b, 30 yr MBS price +19 bps.
The bond and mortgage markets remain bullish; a little overbought at the moment and not likely to move much now with Janet Yellen scheduled to make her speech titled “The Labor Market” at the opening of the Jackson Hole symposium on Friday morning. The Ukraine situation still volatile and hard for markets to handicap; the 250+ trucks loaded with what Russia is calling humanitarian supplies for those caught in the fighting are still not being let into Ukraine.
BEGIN TODAY BY FLOATING; NOT REAL EXCITED ABOUT IT THOUGH. WE WILL LET YOU KNOW IF PRICES DECLNE TO TRIGGER LENDER RE-PRICING.
PRICES @ 10:00 AM
10 yr note: +4/32 (12 bp) 2.38% unch
5 yr note: +2/32 (6 bp) 1.56% -1 bp
2 Yr note: unch 0.42% unch
30 yr bond: +4/32 (12 bp) 3.19% -0.5 bp
Libor Rates: 1 mo 0.155%; 3 mo 0.232%; 6 mo 0.328%; 1 yr 0.551%
30 yr FNMA 3.5 Sept: @9:30 102.72 +19 bp (+1 bp frm 9:30 yesterday) 4.0 coupon 105.73 +11 bp (+8 bp frm 9:30 yesterday)
15 yr FNMA 3.0: @9:30 103.63 +19 bp (+12 bp frm 9:30 yesterday)
30 yr GNMA 3.5: @9:30 104.18 +11 bp (+2 bp frm 9:30 yesterday) 4.0 coupon 106.72 +14 bp (+3 bp frm 9:30 yesterday)
Dollar/Yen: 102.75 +0.18 yen
Dollar/Euro: $1.3320 -$0.0044
Gold:$1299.90 +$0.60
Crude Oil: $95.72 -$0.69
DJIA: 16,887.32 +48.58
NASDAQ: 4519.49 +11.17
S&P 500: 1977.34 +5.60

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