We have a world class secondary market department and they are kind enough to send out weekly updates to us sales monkeys. I like posting it as it is both a great source of technical and anecdotal information. Please let me know your thoughts!
The Week Ahead in the Capital Markets - January 28, 2008
“That was a nice refinance boom we had Wednesday morning, although I wish it had lasted a little longer,” said more than one mortgage banker. As the bond market soared to new heights, conforming fixed note rates were available at or near 5.00%, touching off an avalanche of mortgage origination. “Wednesday was one of the biggest days the industry has ever seen,” said one trader. It was an especially memorable day in light of the doldrums that the mortgage business has endured in recent months.
“If you were out last week, you must wonder what all the fuss is about. After all, mortgage rates only fell 0.02% for the week (never mind the several-point rallies and sell-offs in between), and stocks rose a modest 108 points (never mind the 1000-point range in between). Along the way, the two-year Treasury yield fell briefly to 1.85%, and Fed Funds futures signaled sub-2.00% funds rates later this year.
For this week’s Fed meeting, there is an 82% probability for a 50bp cut to 3.00% and 28% probability for a 25bp cut to 3.25%. The Fed’s surprise 0.75% rate cut on Tuesday, and the prospect of a government-led economic bail-out, quelled some panic in the markets and returned stocks and bonds from their extremes. Much of the talk swirling around the mortgage industry centered on the higher conforming loan limits proposed in Bush’s economic package. Jumbo fixed rates, meanwhile, continue to worsen, and ended the week nearly 1.00% higher than conforming rates (more than three points worse in price).
The spread between mortgage and Treasury yields hit 2.40% last week, close to record highs of 2.60% set in late 2002. This spread is driven by many factors, not the least of which is interest rate volatility. When rates settle down (i.e. when the Fed is not expected to cut or raise rates any time soon), look for this spread to collapse, producing relatively lower mortgage rates.
Lower short-term funding costs widened the difference between two-year and ten-year Treasury yields to +1.40%, resulting in the steepest yield curve we have seen since late 2004.”
“’Beans in the teens!” was the cry heard in Chicago. The reference is to soybeans trading at $13.00 per bushel. ‘Beans set a record of $13.45 earlier this month, and were up 78% last year. More acreage was devoted to corn (for ethanol production) this year than at any time since 1944. Add some weather problems in South America and the U.S. Midwest, and you have a recipe for very high soybean and wheat prices.
Tucker Carlson said on MSNBC the other day that John McCain and his wife Cindy went along with Fred Thompson on his honeymoon. Now, look, I knew Fred Thompson didn't like to work hard, but bringing another guy on the honeymoon? Come on. That is just plain lazy. – Jay Leno
