Weak Fundamentals + EU Angst = Even Lower Rates

After taking one day off the EU problem is on again with the Euro touching below $1.24. A stronger dollar hurts U.S. GDP making exports more expensive (in terms of Euros) and imports cheaper (in terms of dollars). The dollar is also gaining strength against the currencies of our main trading partners Mexico and Canada.

The yield on the 10-year Note has been below 1.7% since the market opened in Chicago. We are now less than 20 basis points from our technical objective of 1.46%. The economy in the U.S. is suffering but folks are putting their money in U.S. Treasuries because things are worse elsewhere. I don’t see this as a formula for success long-term. But short to medium-term, it helps U.S. mortgage rates because mortgage bonds (MBS) are trading in the same direction as Treasuries: prices up, rates down.

Today’s MBS trading is again pulling rates down to record lows. Good time to lock rates, but also if we follow this 1.46% 10yr note target as a signal for MBS, rates could go a bit lower. You need to have a strong tolerance for volatility because it’s not a straight line down. Rates will bounce around in this kind of an uncertain global economy, and we’re already stunningly low.

Mortgage Applications (week ended 5/25/2012)
– Purchase Index, Week/Week -0.6%
– Refinance Index, Week/Week -1.5%
– Composite Index, Week/Week -1.3%

Pending Home Sales (April 2012)
– Pending Home Sales Index = 95.5 (with a value of 100 being “average”)

– Month/Month -5.5%

– Year/Year +14.4%

– This is existing homes that have entered into contract for sale and expected to close within 60 days

– Despite a combination of lower home prices and record low mortgage rates the housing market still suffers. Since rates cannot get much lower we may not see stability in the housing market until prices fall some more. This is a national number and the full report has some regional breakdowns.

Retail
– ICSC-Goldman Store Sales: week/Week -0.5%, year/year +2.9%
– Redbook Store Sales: year/year +3.2%

Related:
Refi Roadmap: A Locked Rate Isn’t A Closed Loan

$EURUSD $TLT $MBB $ZN_F $ZB_F

 
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