WeeklyBasis 4/21/08: Rate Volatility Continues, BofA Profit Down 77%, National City To Raise $7b

Fixed and ARM rates open this week about even, but not after extreme volatility since my last WeeklyBasis report two weeks ago. As Friday’s trading proved, it’s still normal to see rate swings of as much as .5% in a single day, so lock strategy right now is focused on setting rate targets with clients and locking when we hit those targets. Macroeconomic analysis plays into this strategy, but it’s secondary to analyzing trends in bond price levels.

For example, rates rose .25% early Friday morning then dropped about .5% as the day wore on, ending the day down .25%. The main reason was mortgage bond markets struggling between positive corporate earnings led by Google and negative rate sentiment when FOMC member Charles Plosser warned markets not to rely on Fed rate cuts as a market cure-all. Normally, corporate earnings or monetary policy signals are both medium- to longer-term macroeconomic signals, but in this jittery market environment, this information gets priced into markets within single trading sessions. The result is extreme volatility, and I expect it to continue for the rest of the year (at least) as markets sort through the credit crunch.

Lending approval guidelines are still contracting, and it takes at least 30 days (but often longer) for lenders with best pricing and/or most reasonable guidelines to close a deal. Economic news for the week is light. March data for existing home sales Wednesday and new home sales Thursday are the biggest releases, and although these tend not to move bond markets, they have been lately since the numbers have been so weak.

Bank of America earnings this morning showed that quarterly profits fell 77%. National City announced that it will raise $1 billion in private equity funding and another $6 billion in new stock issues, which is positive for credit market sentiment, but the stock issues will dilute their shares significantly, so it’s ultimate effect is questionable. For now, bond trading (and thus rates) is even on the day. Note: I am still not showing super-conforming rates from $417,000 to $729,750 because they’re still very close to jumbos. I will report on this as it changes week-to-week.

Conforming ($200,000 – $417,000) – NO POINTS
30 Year: 6.0% (6.14% APR)
15 Year: 5.875% (6.015% APR)
5/1 ARM: 6.0% (6.15% APR)

Jumbo ($417,001 – $1,000,000) – NO POINTS
30 Year: 7.0% (7.14% APR)
7/1 ARM: 6.625% (6.765% APR)
5/1 ARM: 6.125% (6.275% APR)