Rates Higher On Treasury Auctions & Stock Strength

Mortgage applications increased overall for the second straight week, but purchase applications are still down. The MBA numbers, which poll about half of retail mortgage lenders, were up 2.2%, with refi’s up almost 5%. Purchase applications fell almost 4%, and have fallen in four of the past five weeks.

Rates are not helping things. Yesterday, although mortgage bond (aka MBS) prices started off ok, traders reported that “once the buying subsided mortgages started to leak wider on continued hedge fund and money manager basis selling in addition to outright selling from the originator community.” MBS trading volume was close to normal, although prices finished Tuesday with a whimper, down (worse) by .5-.75 in price, pushing consumer rates .125% to .25% higher.

U.S. treasuries declined for a second day as Japanese officials said the nation may extend purchases of bonds sold by the European fund set up to fight the sovereign-debt crisis, easing demand for the safest assets and pushing investors into stocks. In the U.S., the $32 billion 3-year auction went fairly well, but today we have the $21 billion 10-year note sale and tomorrow $13 billion of 30-year bonds—these longer-dated issues can compete with mortgage bonds for attention. December’s import prices increased 1.1%, less than the +1.5% we saw in November, and export pricing rose .7%. Ahead of today’s auction we have the 10-yr yield sitting at 3.40% and MBS prices are worse by about .34. If this doesn’t break lower, yesterday’s rate rise will hold or go higher.