MORTGAGE APPLICATIONS RISE 1.5 PERCENT

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Published Date 4/12/2017

The bond and mortgage markets started a little better this morning; at 8:30 the bellwether 10 yr 2.29% -1 bp, MBS prices +8 bps from yesterday’s close. Early trade in stock indexes prior to the 8:30 AM EST open slightly better.

Weekly MBA mortgage applications +1.5%, purchases +3.0%, re-finances 0.0%.

The only data today; March import and export prices. Import prices were expected -0.2% and hit right on the forecasts; Feb import prices originally reported +0.2% were revised to +0.4%, yr/yr +4.2%. The decline in March was primarily due to lower oil prices in the month, oil declined 3.6% (since then though crude has increased); we expect import prices will increase in April. This is the 5th straight plus-side yearly reading for import prices. Export prices increased due to increases in farm prices; yr/yr exports +3.6%. No market reactions to the data.

Geopolitical events still dominate and have helped push interest rates lower, this morning the 10 is holding yesterday’s decline of 6 bps to 2.30% slightly breaking its technical resistance. Technically it is important that the 10 moves lower if we are going to see any substantial rate declines. If it weren’t for the Syria/Russia, North Korean missile launch and threats to hit the US with a nuke, we doubt interest rates would be as low as they are at present. The Fed still talking about two more increases in the Fed funds totaling 0.50% increase and also rumbling about beginning to reduce its $4.2 trillion balance sheet; both taken together are bearish for the interest rate outlook. Comments from Dallas Federal Reserve Bank President Robert Kaplan will be scoured for clues on interest rate hikes and the Fed’s plans to trim its balance sheet. Kaplan is expected to speak at 10:00 a.m. ET.

Presently global tensions are running high; we’ve been here before many times in the last ten years, but at the end of the day issues tend to cool down. North Korea’s threat to launch a nuclear attack on the US is not possible, just an empty threat but enough to keep investors in safe haven treasuries; that is also driven by the stock market showing it has momentarily run out of momentum. China is not about to let North Korea get too far out of hand. The US is sending a Navy strike force as a show of strength, but no one expects any actual military action. In Syria with Russia, a lot of posturing but many view the likelihood of another strike to be fairly low. That all said, we have to take it as markets believe now.

Already today, after opening better the 10 yr has lost momentum, and MBS prices are now trading lower after being up 8 bps from yesterday.

At 1:00 pm Treasury will sell $12B of 30s re-opening the bond issued in Feb. Yesterday’s 10 yr auction was soft based on comparisons of previous auctions.

There is little left today; no more data and Dallas Fed Kaplan isn’t likely to light any fires. We are approaching the Easter holiday with markets closed on Friday. I can’t stress it too hard, the 10 yr note, driver for MBS prices, is at a very crucial technical level now at the 2.30% area. That said, out tech models are still holding minor bullish readings. We have been holding locks and will start the today by continuing to hold; stay alert however.

Source: TBWS

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