Market Commentary – 2/19/16

Posted on February 19, 2016 by Conrad Juliá

Bonds are trading decently this Friday morning even with a better-than-expected January Consumer Price Index and Core CPI readings, which strips out volatile food and energy. Stocks rallied hard this week and bond yields climbed mildly after a brutal couple of weeks of trading. U.S. employment readings remain positive despite concerns over oil, China, and worries of a potential global recession.

Technically, mortgage bonds continue to trade just above support levels. With the 10-year U.S Treasury note trading near 1.76%, interest rates remain extremely attractive and we continue to remain biased toward locking in interest rates at these low yield levels.

Market Commentary – 2/11/16

Posted on February 12, 2016 by Conrad Juliá

Falling interest rates around the globe as of Thursday, February 11th, 2016.

U.S. Germany Japan Switzerland

1.70% .19% .01% -.31%

Rising volatility in stocks, currencies and commodities have greatly benefited bond yields. The yield on the 10-year U.S. Treasury note, a benchmark for everything from mortgage rates to corporate lending, fell just below 1.60% this week, its lowest level in over a year. The two-year U.S. Treasury-note yields, a widely watched gauge of bank funding costs, also dropped significantly. Too much of a good thing can be worrisome, and folks are concerned about the factors that are driving down interest rates. The precipitous drop in global interest rates prompted Congress to question Fed Chair Janet Yellen regarding the potential adverse effects negative interest rates may have on the U.S. economy.

Yields are compressed and bank stocks have been under tremendous selling pressure lately due to various factors including concerns over oil related debt as well as zombie Euro-zone loans. The added yield squeeze is also eating into banks’ profits.

Friday brought some positive news after a brutal week for global equities. Oil and equities rallied early Friday and the European and U.S. equity markets also posted strong gains. A strong retail report for January brought welcomed good news.

With interest rates hovering near historical lows, we remain biased toward locking in loans at these levels. Technically, bonds are overbought and a strong possibility remains for a reversal or sell off in bonds, which may yield higher interest rates. Our mantra remains “a bird in the hand is worth two in the bush” when it comes to interest rates at these low levels.

Market Commentary – 2/5/16

Posted on February 5, 2016 by Conrad Juliá

It’s anyone’s guess how low bond yields can go with short-term government-guaranteed European and Japanese debt offering negative yields. The idea of a negative interest rate is probably something that none of us thought was possible. Bill Gross, the famed bond manager, seems to feel that something will have to give, saying, “In recent weeks markets have witnessed Mario Draghi of the European Central Bank (ECB) speak to ‘no limit’ to how low Euroland yields could be pushed – as if he were a two-time Texas Hold’em poker champion.” He then noted that in turn, Janet Yellen halted the Fed’s well-advertised tightening cycle at 25 basis points, at least temporarily, followed a few days later her counterpart at the Bank of Japan, Haruhiko Kuroda, decided to enter the “black hole of negative interest rates much like the ECB and three other European central banks.”

Domestically, U.S. bonds have benefited from these central bank policies with the 10-year Treasury trading around 1.84% as of Friday afternoon (2/5/16). A mixed job report further benefitted mortgage bonds this morning. The jobs report for January came in at less than 40,000 than predicted. However, the jobless rate did fall to less than 5%. Volatility in various sectors including global equities, the oil patch and loans made to the oil industry all continue to weigh on the market as well. These factors too are helping to push yields lower.

Though rate increases are on the horizon, experts believe the Fed will hike rates no more than four times in 2016.

Technically, bonds are overbought, and we remain biased toward locking in interest rates with yields at these levels.

Alt-A Loans Get New Respect

Posted on February 2, 2016 by Conrad Juliá

As a mortgage broker specializing in complex jumbo loans in California, I read with interest the article from the Wall Street Journal on “Alt-A” loans (Remember ‘Liar Loans’? Wall Street Pushes a Twist on the Crisis-Era Mortgage, February 2, 2016). I took this as a sign of encouragement for the many self-employed borrowers with sporadic income, or less than perfect credit.

These borrowers have had little success obtaining financing from large banks, even when putting down payments of over 40%! Today’s “non-qualified mortgages” do not resemble the “liar loans” of the past. These days, both borrowers and lenders must invest more effort analyzing complicated loan terms that are structured to compensate for factors such as unpredictable income, or lower credit scores.

We at Insignia Mortgage have built strong relationships with regional California-based lenders who will underwrite these types of loans, often offering very favorable interest rates (example: 5-year fixed 3.218% to 3.718% APR). This WSJ article reinforces the ideas that investors are starting to realize these loans are not all bad. Wall Street certainly seems to be warming up to these loans.

Market Commentary – 1/29/16

Posted on January 29, 2016 by Conrad Juliá

Interest Rates Lowered. Excellent Refinance Opportunity.

Slow growth in 2015 now looks like no growth in 2016. The U.S. 4th quarter Gross Domestic Product (GDP) reading came in Friday morning at a very anemic .7% register with a forecast of only 2.40% for 2016. These numbers, while backward-reading, confirm some of the suspicions that both the U.S. and the world economy are slowing. Interest rates responded favorably to this poor GDP number (remember that bad news is good for bond yields) with the 10-year U.S. Treasury touching 1.94%, WOW. Bonds were further stoked by the surprise move from the Bank of Japan to move short-term interest rates into the negative in its effort to kickstart the economy by forcing banks to lend, and consumers to spend.

There was one bright spot today. The Chicago Purchasing Manger Index (PMI) reading was 55.6 reading, which indicates manufacturing expanded and is an encouraging sign for the U.S. economy.

The Fed spoke earlier in the week and announced no change in short-term interest rates. Given the poor start to 2016, most forecasters do not believe there will be another rate hike by the Fed this year. Given that the Chinese economy has slowed, the dollar continues to surge and oil has remained lower than expected, it is hard to imagine a significant rise in interest rates. The world economies seem to be addicted to low interest rates with Central Bankers willing to provide the juice needed to propel equities higher and push yields lower. How this all ends is anyone’s guess.

Given the 10-year U.S. Treasury is below 2.00%, we are biased toward recommending locking in interest rates at these levels.

Market Commentary – 1/22/16

Posted on January 22, 2016 by Conrad Juliá

The global equity market began cutting some losses on Thursday and into Friday morning after another very volatile week for stocks. The positive late week turn-around in equities may be attributed to both Japanese and European central bank policy statements of more economic stimulus in the near term.

Oil remains front page news with prices dropping again earlier in the week before recovering. Oil is trading above $31 per barrel. One would think that low oil prices would be a boom for businesses and for the consumer. However, the pundits have indicated the drop in oil and other commodities as cause for concern from both a deflationary and economic standpoint. The markets want inflation as it is a positive economic indicator of future growth, and oil is the indicator everyone is looking at.

The 10-year U.S. Treasury yields dropped to around 1.94% mid-week in response to the chaotic markets. This will spur more refinancing activity in the short term.

There was some very positive news on the housing front. December existing home sales surged nearly 15% from November to an annual rate of $5.46 million.

Given the move lower in yields, we are biased toward advising clients to lock in interest rates at the current levels. Should volatility subside, interest rates may suffer an increase in yields.

Market Commentary – 1/15/16

Posted on January 15, 2016 by Conrad Juliá

Stocks collapsed on Friday with oil dropping below $30 per barrel; China is entering a bear market and retail sales in the U.S. fell. This is some pretty scary news and U.S. bonds have benefited greatly with the 10-year U.S. Treasury bond yield dipping below 2%. Falling inflation and weaker global growth are weighing heavily on the markets this week. The market is not off to a good start in 2016.

On the interest rate front, the Federal Reserve is unlikely to raise rates four times this year as previously discussed. Mortgage bonds should continue to benefit from all of this uncertainty.

We remain cautious on where interest rates may go from here given where rates have gone the start of this year. However, clients will benefit on both purchases and refinances with sub 2% 10-year U.S. Treasury interest rates, and therefore we remain biased toward floating interest rates given the current volatile world market.

Market Commentary – 1/8/16

Posted on January 8, 2016 by Conrad Juliá

U.S. interest rates are modestly lower this week after a brutal global sell-off in stocks. China’s economic troubles, the sharp decline in oil and other commodity prices, and the yield increases in junk bonds are all signals of deep fundamental problems. The stock markets took note of these issues this week with a violent sell-off.

Friday brought another jobs report, which blew past expectations. However, hourly earnings were unchanged while the unemployment rate held firm at 5%. The absence of wage inflation was credited for keeping bond yields from rising. With oil and other major commodities at multi-year lows and no sign of wage earning growth, it is hard to imagine bond yields rising much, even with the Federal Reserve’s recent increase in short-term rates.

With so much concern for the direction of the global economy, we remain biased toward floating interest rates at this time.

Market Commentary – 12/18/15

Posted on December 18, 2015 by Conrad Juliá

U.S. bonds rallied late this week after the expected Fed increase of .25% on short term overnight lending rates. It is important to make the distinction between short-term and longer-term interest rates. While the Fed can control short-term interest rates and to a much lesser extent, longer term interest rates, the ultimate driver of longer term interest rates is the market and the expectations on inflation, employment and economic growth. With inflation non-existent and an anemic world economy barely in recovery, we are not surprised to see interest yields decline in the face of this Fed rate hike. The smart money was well aware of the high probability of this rate hike and adjusted to it well before the normal citizen.

The stock market is having another volatile week which benefits the safe haven of the bond markets. With monetary policy so complicated given the various opaque stimulus initiatives having been constructed by the U.S., European, Japanese and Chinese policymakers, we continue to be biased toward locking in loan programs when the rates look attractive.

Market Commentary – 12/11/15

Posted on December 11, 2015 by Conrad Juliá

U.S. bonds yields rallied hard today (yields and price move inversely) on falling oil prices and concerns over high-yield debt especially within the energy sector. Overall, the stock market had a tough week with both the Dow Jones Industrial average and S&P 500 closing down over 3% for the week.

Surprisingly, bonds rallied into inflationary news that was reported this morning. Wholesale inflation was higher and rose at the fastest pace since June. Even the almost certainty of a December rate hike by the Federal Reserves did not deter bonds. U.S. 10-year Treasury yield closed the week at 2.148%

A quick thought on oil: Oil closed at $35.36/barrel this week. Most of us never thought we would see oil under $60 per barrel in our lifetimes; the current price is remarkable. While putting an average of $350 in each consumers’ pocket this year, the low price of oil is troubling because oil is used in so many of our businesses from manufacturing to product development to transportation. The key question to ask is: What is $35 oil telling us? Obviously, the market is concerned.

With so much negativity in the air, we are biased toward floating interest rates at this time.