Rates Up Slightly Today. Preview Rate Markets Next 2 Days.

Rates are up slightly today after mortgage bonds (MBS) opened worse and have clawed back to almost even. Rates rise when bond prices drop and the benchmark Fannie Mae 3.5% coupon is down 3 basis points to 105.75. This comes after a definitive rally Friday, Monday and Tuesday following Friday’s poor jobs report.

Most rate headlines hit the press on Thursdays when Freddie Mac releases it’s weekly rate survey. Last week, I explained the critical fine print from the survey that doesn’t make it into most press stories and rate consumers must know this.

Among the important fine print is the fact that Thursday’s Freddie Mac numbers used by most media are from the week leading up to Thursday. So unless MBS sell off further today, the average Freddie Mac rates will cause another wave of “new record low” headline hysteria. The question, as always, will be if rates are still holding by the time these headlines wash over consumers. Because remember: the rates are expired for the rates being discussed in those stories. Read the link above for the rest of the fine print.

As for whether MBS will sell off today/tomorrow and push rates higher, we’ve got minutes from the June 20 Fed meeting coming out shortly. Rates rose after that meeting because the Fed didn’t make any explicit commitment to buy more MBS. If today’s minutes confirm this, we might see the same thing.

We’ve also got results of a $21b 10yr Treasury Note auction today and a $13b 30yr Bond auction tomorrow. The demand for these auctions can impact MBS markets as well.

Bottom line: there’s some upward rate risk after the rally we’ve had, but it’ll come down mostly to the Fed minutes.

UPDATE: June 20 Fed minutes didn’t reveal anything the Fed meeting already hadn’t, and the 10yr auction was very strong. Former worse for rates, latter better. Net result: MBS are exactly where they were as noted above: down 3 basis points, and rates are still up slightly as lenders are taking the slight negative as a signal to price conservatively until more definitive signs emerge that these MBS levels can be sustained.

And below is a rundown of U.S. economic fundamentals since yesterday.

MBA Mortgage Applications (week ended 7/6)
– Purchase Index, Week/Week +3.0 %
– Refinance Index, Week/Week -3.0 %
– Composite Index, Week/Week -2.1 %
– The week included the July 4 holiday.

Trade Deficit: the (X-M) Component of GDP (May 2012)
– May Deficit was $48.7 billion.  Previous was $50.6 billion. 

– The largest deficts were with China ($26.0 billion) and OPEC nations ($11.2 billion.) 

– The situation in the EU and weakness of thbe Euro v the U.S. dollar has not yet had a serious effect on U.S. exports to EU nations.

Wholesale Inventories (May 2012)
– Month/Month Inventories were +0.3%. 
– This measures anticipated consumer spending and this value is modestly weak.

And yesterday…

Chain Store Sales (week ended 7/7/2012)
– ICSC-Goldman Store Sales week/week +2.0%. Year/Year +3.0%. 

– Data for the previous week had been weak because of widespread weather related power outages.

– Redbook Store Sales Year/Year +2.2% same as previous.

NFIB Small Business Optimism Index (June 2012)
– Index level was 91.4 down from previous 94.4.

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