Signs of Cheer in US Bonds Faint, at Best

When former Federal Reserve vice-chairman Alan Blinder warned of the dangers of a “cacophony of voices” from interest-rate setters, he might have been thinking of this week’s Fed announcements.

The Fed forecast that it would keep rates on the floor to the end of 2014, 18 months longer than it had previously said. Investors rushed to buy Treasury bonds, driving the yield on the five-year bond to its lowest ever. Then for the first time the Fed revealed individual policymaker forecasts. More expected rates to rise earlier, or later, than in 2014. Yields jumped again.

Investors are now pricing in a rapid tightening in 2015 and 2016, of about 1.5 percentage points each year. Only three times in the past 40 years has the Fed raised faster: 1973-74, 1978-82, and 1989. All were followed by recession.

The Fed also unveiled policymakers’ views on what counts as normal “longer-run” rates, ranging from 3.75-4.5 per cent. With 30-year bond yields at 3.1 per cent, investors seem to expect the economy to remain subnormal for decades.

It is not unreasonable to think that the US will grow more slowly in future, thanks to its debt overhang and the costs of its ageing population.

But lower long-term yields also result from Operation Twist, under which the Fed sells short-dated bonds in favour of longer-dated ones. Perhaps we should be sceptical about indicators from the manipulated bond market.

Still, signs of cheer from the bond market are faint, at best. The 30-year has risen a little recently, but the steepening of the yield curve has mainly been owing to falling five-year rates, which is not a good sign.

By forcing down rates for longer and longer, the Fed is making it progressively less appealing to hold safe assets. That sharpens the distinction between the loss after inflation on safe assets, and the trade the Fed wants: borrowing to take risk. Barring eurozone implosion, risky assets have gained appeal. For a while.

Credit Bureaus Selling Your Info: How to Opt Out

Written in our customer agreements with borrowers is a promise that our company would never release personal or financial information. Unfortunately, credit bureaus do not abide by these same rules.

The credit bureaus are the culprits on trigger leads which can cause solicitation for anyone borrowing for a home loan because they sell the leads to companies. It’s not the vendors (LandSafe, IR, etc). Unfortunately, we are at the mercy of the bureaus on this deal. However, there are simple steps you can take to opt out of your information being sold by credit bureaus.

How to opt out of trigger leads

There are two ways to opt-out of trigger lead programs and ensure your information is not sold.
1. Complete and submit an online form at www.optoutprescreen.com. This method stops trigger leads for five years.

2. Complete a separate form at the same Web site (www.optoutprescreen.com) and then print, sign and mail a letter generated by that form to confirm your opt-out request. This method stops trigger leads permanently.

Both of the opt-out methods take five days to become effective, so if you don’t want your information to be sold, you need to opt-out at least five days before you make a specific inquiry.

If your information is already in the trigger lead pool, you may continue to receive telephone calls and mailings for some time after you elect to opt out.

Opting out via one of these methods is highly recommended for your privacy.

This Week's Market Commentary

This week is quite busy in terms of economic data and other events that are relevant to mortgage rates and is likely to be an active one for mortgage rates. There are five economic releases scheduled for the week in addition to the first Federal Open Market Committee (FOMC) meeting of the year that will include a press conference with Chairman Bernanke, two potentially influential Treasury auctions and the President’s State of the Union address. All but one of the five economic reports are considered to be of moderate or high importance, meaning we should see quite a bit of movement in mortgage rates this week.

There is nothing of relevance scheduled for tomorrow or during trading hours Tuesday, thus we can expect the stock markets and any potential news from overseas to drive bond trading and mortgage pricing. If the major stock indexes post strong gains, bonds will probably falter, leading to higher mortgage rates the early part of the week. President Obama will make his State of the Union address at 9:00 PM ET Tuesday evening. Topics and parts of the speech will be leaked prior, which may influence the markets during regular hours the first two days of the week. The biggest reaction to his words will come Wednesday morning.

Wednesday also has no relevant economic data scheduled for release, although it does have this year’s first FOMC meeting results. The meeting will begin Tuesday and adjourn at 12:30 PM ET Wednesday. It is expected to yield no change to short-term interest rates, but as is often the case, traders will be looking for any indication of the Fed’s next move and when they may make it. I believe that there is little chance of indicating a possible rate hike in the near future, but any hints of a change in theories or timetable by the Fed will cause afternoon volatility in the financial and mortgage markets. The meeting will adjourn early instead of the regular 2:15 PM time because it is one of four meetings this year that will be followed by a press conference hosted by Fed Chairman Bernanke.

Thursday morning brings us the release of three of the week’s economic reports. The first is December’s Durable Goods Orders at 8:30 AM ET. This data helps us measure manufacturing strength by tracking new orders at U.S. factories for products that are expected to last three or more years, also known as big-ticket items. The data often is quite volatile from month- to-month, but is currently expected to show an increase in orders of approximately 2.0%. A smaller than expected increase would be considered good news for bonds and mortgage rates, but a slight variance likely will have little impact on Thursday’s mortgage pricing.

Next is December’s New Home Sales report at 10:00 AM ET. It is considered to be the sister release to last week’s Existing Home Sales, giving us a small snapshot of housing sector strength. It tracks a much smaller portion of home sales than last week’s report did and is forecasted to show an increase in sales of newly constructed homes. However, this data is not important enough to heavily influence mortgage pricing unless it varies greatly from forecasts.

The third report of the day is December’s Leading Economic Indicators (LEI) at 10:00 AM ET. The LEI attempts to measure economic activity over the next three to six months. It is considered to be of moderate importance to the bond and mortgage markets. Analysts are currently expecting the Conference Board to post a 0.7% increase, meaning that economic growth over the next few months will likely rise fairly quickly. Generally speaking, this would be bad news for the bond market because a strengthening economy makes long-term securities such as mortgage bonds less attractive to investors.

The remaining two economic reports will be released Friday morning, one of which is arguably the single most important reports that we see regularly. That would be the initial reading of the 4th Quarter Gross Domestic Product (GDP) early Friday morning. This data is so important because it is considered to be the best measurement of economic activity. The GDP itself is the total sum of all goods and services produced in the United States. Its results usually have a major impact on the financial markets and can cause significant changes in mortgage rates. There are three readings to each quarter’s activity, each released approximately one month apart. The first reading, which usually carries the most significance, is expected to be an increase of 3.1%. A noticeably weaker reading would be great news for the bond market, questioning the pace of the economic recovery. That would likely fuel stock selling and a rally in bonds that would push mortgage rates lower Friday morning.
However, a stronger than expected reading should fuel bond selling and higher mortgage rates.

The last report of the week is the revised reading to the University of Michigan’s Index of Consumer Sentiment. This index is a measurement of consumer confidence that is thought to indicate consumer willingness to spend. If confidence is rising, consumers are more apt to make large purchases in the near future. Since consumer spending makes up two thirds of the U.S. economy, any related data is watched closely. I don’t see this data having much of an impact on the markets or mortgage rates due to the importance of the GDP reading.

And if we didn’t have enough to watch already, there are two relatively important Treasury auctions for the markets to digest. The Fed will auction 5-year and 7-year Treasury Notes Wednesday and Thursday, respectively. If they are met with a strong demand from investors, the broader bond market may rally during afternoon hours those days. If the sales draw a lackluster interest, they could lead to bond selling and higher mortgage rates during afternoon hours those days.

Overall, look for Wednesday or Friday to be the biggest days for mortgage rates. Friday’s GDP is the single most important piece of data this week, but we may see quite a bit of movement in rates Wednesday morning and again in the afternoon following the Fed’s time in the spotlight. I would be quite surprised if we did not see a very active week in rates, including intra-day revisions on multiple days. I strongly recommend that constant contact is maintained with your mortgage professional this week if still floating an interest rate.

With Existing-Home Sales On The Rise, Could Wall Street Be Right About Housing?

Despite the holiday hubbub, homes sales continued their upward trend in December. The National Association of Realtors says existing-home sales, or completed sales on single-family homes, co-ops, condos and townhomes, ticked up 5% to a seasonally adjusted rate of 4.61 million. There were 3.6% more sales completed during the month than during December of 2010 and NAR says that completed sales were 1.7% higher for the entire 2011 year as compared to 2010.

The total housing inventory fell 9.2% to 2.38 million existing homes for sale. At the current sales pace that represents a 6.2-month housing supply — the lowest level of inventory logged in nearly seven years and lower than the seven-to-eight month inventory levels NAR has said indicate steady home prices.

“The pattern of home sales in recent months demonstrates a market in recovery,” asserted Lawrence Yun, chief economist for NAR, in a statement.  “Record low mortgage interest rates, job growth and bargain home prices are giving more consumers the confidence they need to enter the market.”  Is Yun right? Could these numbers reflect the hopeful signs of a housing market recovery this year? That depends on who you ask.

Wall Street has grown increasingly bullish in recent weeks about housing. No, firms don’t necessarily think home prices will rebound anytime soon, but many believe that 2012 is the year of the bottom. Goldman Sachs Group released a December report indicating that the home price bottom is in sight. Earlier this week JP Morgan chief executive Jamie Dimon told Maria Bartiromo that, “We have seen the worst. We are at the bottom. We may hug along the bottom for a while, but we are at the bottom.”  And Liz Ann Sonders, chief investment strategist at Charles Schwab, told The Street that she also believes housing is nearing its bottom, though a rebound will take years to develop and will occur on a more regional basis. The list goes on.

But market bottom and market rebound remain two different things. Even if the bottom is nigh for housing, price appreciation will take time to settle in. The number of completed sales may have finished the fourth quarter of 2011 in an upward trend, but homeowners need to remember that increased sales don’t automatically mean increased prices. In fact it can mean the opposite.

This Week's Market Commentary

Tuesday’s bond market has opened up slightly despite a strong open in stocks. The Dow is currently up 112 points while the Nasdaq has gained 28 points. The bond market is currently up 2/32, which should improve this morning’s mortgage rates by approximately .125 of a discount point from Friday’s morning pricing.

There is nothing of relevance scheduled for release today, but the rest of the week brings us five pieces of economic data for the markets to digest. Two of them are considered to be highly important for the bond market and mortgage rates. The financial markets were closed yesterday in observance of the Martin Luther King holiday.

The first report of the week will be posted early tomorrow morning when the Labor Department’s Producer Price Index (PPI) will be posted at 8:30 AM ET. The PPI is important to the markets and mortgage rates because it measures inflationary pressures at the producer level of the economy. Analysts are expecting to see a 0.1% increase in the overall reading and a 0.1% increase in the more important core data reading that excludes volatile food and energy prices. A larger than expected increase in the core reading could mean higher mortgage rates tomorrow since inflation is the number one nemesis of the bond market. It erodes the value of a bond’s future fixed interest payments, making them less attractive to investors. Accordingly, they are sold at a discount to offset the drop in value, which drives their yields higher. And since mortgage rates follow bond yields, this means higher rates for borrowers.

December’s Industrial Production report will also be posted tomorrow morning, but at 9:15 AM ET. This data measures output at U.S. factories, mines and utilities, giving us an indication of manufacturing sector strength or weakness. Current forecasts are calling for an increase in production of 0.5% from November’s level. A smaller than expected increase would be considered good news for bonds and could help lower mortgage rates, but the PPI is by far the most important data of the day for the bond market and will have the biggest impact on that day’s mortgage pricing.

Overall, today will likely be the least active day for mortgage rates. The most important day will probably turn out to be tomorrow or Thursday with the two key inflation readings scheduled. But the stock markets and news from overseas can be a big influence on bond trading and mortgage pricing any day, so maintaining contact with your mortgage professional is recommended.

As Economy Grows, Jobs Are Still Scarce, Fed Says

Economic expansion improved last month across most of the country while hiring was limited and housing remained stagnant, the Federal Reserve said on Wednesday.

The economy “expanded at a modest to moderate pace” from late November through the end of December on increased holiday retail sales, demand for services and oil-and-gas extraction, the Fed said in its beige book business survey. At the same time, most industries saw “limited permanent hiring,” and the housing market remained “sluggish.”

The report may reinforce the views of a majority of Fed officials, who see an economy that is expanding without being strong enough to reduce joblessness as quickly as they would prefer. The unemployment rate dropped to 8.5 percent in December from 9.4 percent a year earlier. Fed officials are urging lawmakers to try more housing-aid programs.

“The reports on balance suggest ongoing improvement in economic conditions in recent months,” the Fed said in the report, which comes out two weeks before each meeting on monetary policy. “The combination of limited permanent hiring in most sectors and numerous active job seekers has continued to keep a lid on general wage increases.”

The beige book report reflects a “slightly better tone, slightly better data,” said Joseph LaVorgna, chief United States economist at Deutsche Bank Securities in New York. Even so, “the financial market has taken recent Fed commentary as generally dovish and as a signal that the Fed is perhaps exploring more easing measures.”

The residential real estate market “largely held steady at very low levels” except for increasing construction of multifamily homes, the beige book said. The rental market tightened in some areas, the report said.

The Fed said in the report that inflation and pressures to raise prices were limited at the end of last year. Several district banks reported that “upward price pressures from rising commodity and input prices have eased substantially,” the Fed said.

Three Must-Read Personal Finance Books

There are many informative and interesting books about managing your personal finances out there. These three are some of the best stand-outs to make a change in the way you view and handle your money.

1. The Intelligent Investor by Benjamin Graham
The author of this book is considered one of the best financial investors of the century, and his advice is still extremely relevant since its original publishing in 1949. His stock market strategies are highly well-respected, and this book will give you a deeper understanding of how to invest your money.

2. The Total Money Makeover by Dave Ramsey
This bestseller is a great overview to managing your finances. It covers getting out of debt, investing, saving for emergencies, college, paying off your mortgage, and much more.

3. The Millionaire Next Door by Thomas Stanley and William Danko
This book explains what people not just in Beverly Hills or the Upper East Side are doing to make themselves financially successful. It goes over the seven common key traits that the authors have found that wealthier people possess, maybe even your next door neighbor, and shows you how to cultivate them for yourself.

Do you have any favorite personal finance books that belong on this list? Add them to the comments!