April 7, 2012

WeeklyBasis 4/7: Rate Spike Scare Over For Now

April 7, 2012

WeeklyBasis 4/7: Rate Spike Scare Over For Now

Rates ended last week roughly flat: 30yr single family home loans to $417k closed even at 4.0%, and higher loan tiers dropped a bit. Here are Friday’s rates for all loan tiers.

Once again rates weren’t just flat, they swung up and down as bonds traded mixed signals.

Rates spiked .375% Tuesday as FOMC meeting minutes released that day signaled the Fed wouldn’t provide more rate stimulus unless the economic outlook darkens drastically.

Rates regained some of that ground Wednesday and Thursday as mortgage bonds (MBS) clawed back from Tuesday’s off-a-cliff selloff.

Then MBS posted a massive rally in holiday-shortened trading Friday after BLS reported the economy added 120k new nonfarm jobs in March … way below expectations of 200-230k and way below the average monthly increase of 246k over the prior 3 months.

Rates drop when bond prices rise, the 3.5% Fannie Mae MBS coupon (a key benchmark lenders use to price consumer rates) jumped 73 basis points Friday.

This erased Tuesday’s losses and rates closed the week even.

These gains helped the Fannie 3.5% coupon blast above its 25 and 50 day moving averages. Reclaiming that 50-day line is an especially important technical signal since we hadn’t closed above it since March 9.

While rates were dropping on the bond rally, stocks had a rough ride.

The S&P 500 closed Monday at 1419 then slid 1.48% to close the week at 1398. Monday’s level was the highest since hitting 1425 in May 2008.

So in a couple hours Friday, markets traded the jobs report as a drastically darkening outlook.

Will the Fed agree enough to hint at rate stimulus options being back in play?

We’ll find out because there are 8 speeches by Fed officials next week, and traders will parse every word. We’ve also got bond auctions, inflation data, and earnings season kicks off slowly.

Here I preview each item.

Friday’s jobs report bodes ill for stocks and better for bonds (rates down) at Monday’s open.

The rest of the week is dependent on Fed feedback, earnings, and auction results.

Volatility will continue, but as noted above, MBS look stronger technically so rates should hold next week. If MBS retain their current levels, lenders should lower rates by about .125% (something they didn’t do before Friday’s 12pm ET close).

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