THE BASIS POINT

WeeklyBasis 2/20: Will Higher Rates Hold?

Rates were up .125% to .25% last week: 30yr single family home loans to $417k closed at 3.875%. Here are Friday’s rates for all loan tiers.

Rates rose on lots of improving U.S. economic data and optimism about an orderly bailout 2.0 for Greece.

There’s an imminent press conference tonight (Monday) following a summit of European leaders to fine-tune terms of Greece’s bailout and the debt swap deal its predicated on.

Because of the debt swap, it’s still questionable whether the bailout will be orderly. If it’s not, U.S. rates will hold or drop as investors seek safety of U.S. mortgage and Treasury securities—yields (or rates) drop when bond prices rise on buying.

As for U.S. data, last week showed:

-the highest homebuilder confidence since May 2007

-the highest level of home construction since November 2008

-the lowest jobless claims since March 2008

-New York and Philadelphia area manufacturing indices hit 3 and 5 month growth streaks, respectively

-Producer and consumer inflation remains under control

These positive reports caused mortgage bonds (MBS) to sell and rates to rise. Still, investors didn’t really pile into stocks either. The S&P 500 was only up 1.34% on the week, closing at 1361.

As for MBS, the 3.5% Fannie Mae coupon—a key benchmark lenders use to price consumer rates—closed last week at 103.30. This was only down 12 basis points for the week, yet rates rose more than this drop would suggest.

The reason is that lenders get conservative on pricing when there’s so much uncertainty, so they priced rates higher going into a big weekend for Greece deliberations.

MBS closed below their 25-day moving average of 103.41 so if they can’t rise above it early this week, we could see rates move up modestly or hold current level.

Previewing this week, we’ll see if:

-Existing home sales hit a fourth straight month of gains in January, or if a trend of cancelled deals slows growth

-New home sales gained any traction in January, or the fact that they cost 28% more than existing homes will keep a lid on sales

-Homes with Fannie/Freddie mortgages are still flat to down in price for December

Positive numbers on these reports won’t cause rates to spike, but the next two trading days are key to determine if we remain in this record low range or rise a bit more. It’s all Greece … again.
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Related:
Stat by Stat: Recap Feb 13-17, Preview Feb 21-24
Greece bailout in simple terms
Rate Chart: 1971-PRESENT