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Loan Costs Up 37% Nationally
Loan costs are up 37% nationally this year, and 41% in Illinois, according to Bankrate Inc. Lenders absorbed a certain portion of this increase as the government began requiring lenders to provide more accurate good faith estimates of closing costs or face penalties. Nationally, average estimated closing costs rose to $3,741 from $2,732. The most expensive state was New York, where costs averaged $5,623, and Texas, where costs averaged $4,708. It includes lenders’ origination fees and title and settlement fees. It does not include property taxes, recording fees or homeowners insurance.

Fate of Fannie & Freddie
Freddie Mac announced that it will be asking for an additional $1.8 billion cash infusion from the Treasury Department after reporting a 2nd quarter loss of $6 billion. ($6 billion is better than the $8 billion lost during the 1st quarter, but still…) These numbers include stock dividends payable to the US Treasury. So I guess Freddie pays a dividend, and then basically asks for it back in order to continue functioning? There continues to be conjecture about Fannie/Freddie’s fate. The latest comes from an ex-Fed Governor, William Poole, and is worth a skim. Ultimately, of course, if those companies leave the US mortgage market, and are replaced by private investors, it will have a huge impact on both small and lenders. more…

Moody’s Cuts Greece To Junk
Moody’s cut Greece’s credit ratings to junk status (Ba1). Greece has been downgraded to non investment grade and Spain cannot seem to find any funding to rescue its savings banks. Of course, the rate on any fixed income security tied to Europe has gone up to compensate investors for the risk, and prices have dropped. The risk of owning Europe’s corporate bonds is the highest on record relative to U.S. company debt. The 12-month bill, which paid an average yield of 2.303 percent after 1.59 percent in the same auction in May, and the 18-month, which gave 2.837 percent, up from 1.951 percent, were seen as litmus tests for a more important 10- and 30-year bond auction tomorrow. Even France raised its retirement age from 60 to 62, sparking protests – although it won’t happen until 2018.

Of 33 Recessions Since 1854, Only 3 Double-Dips
Fortunately US recessionary “double-dips” are exceptionally rare. There have been only three episodes in US business cycle history when the economy lapsed back into recession within a year of the previous recession ending: 1913, 1920, and 1981. (Since 1854 there have been 33 recessions and only three instances when the economy lapsed back into recession within 12 months of exiting the previous downturn.) So this, combined with the fact that US exports to the Euro Zone only account for about 1% of our GDP, lead smarter minds than mine to believe that any chance of a double dip are minimal. more…

The US Producer Price Index, which measures inflation at the business and manufacturing levels of the economy, was 0.7% in March and 6% year-over-year through March. Excluding volatile oil and food costs from the readings, “Core” PPI for March was 0.1% and 0.9% YOY through March. The “Core” numbers were very close to last month and considered tame, but the YOY March number of 6% is cause for concern. Rates initially ticked up on the news this morning, but have since evened out on stock weakness caused by: higher than expected jobless claims (456k actual vs. 450k expected) and a worse than previously reported number on Greece’s budget deficit. Looking forward today, Treasury will announce the amount of securities to be auctioned off next week: 2-yr, 5-yr, 7-yr, and 5-yr TIPS. And also President Obama will be speaking shortly on regulatory reform.

See the BLS charts for producer prices below; you can see how volatile this monthly inflation report is, and this is why markets shift so much each month as it’s released. Also you can automatically create charts and download historical PPI data by scrolling to our data section on the right side of the site, or visiting our Data page. And you can see all stats on our Economic Calendar page, and click each release title for the definition of what each stat means.

The US Producer Price Index, which measures inflation at the business and manufacturing levels of the economy, was -0.6% in February and 4.4% year-over-year through February. Excluding volatile oil and food costs from the readings, “Core” PPI for February was 0.1% and 1% YOY through February. These monthly “All” and “Core” numbers were lower than expected. Rates are steady on this morning’s news, and so far rates aren’t reacting negatively to this morning’s announcement of next week’s 2yr, 5yr, and 7yr Treasury Note auctions. Tomorrow’s consumer inflation number will give us another key inflation signal to follow today’s.

You can click the Monthly ‘All’ and ‘Core’ PPI reports in our Data section (on the lower right side of the site) or going to our full data page, and it will display a chart where you will see the monthly see-saw as inflation rises and falls monthly, which contributes to rate volatility. A lot of this has to do with oil price volatility, which you can also see by scrolling to the Data section. On surface level, market sentiment seems to be that inflation shouldn’t be an issue for some time because aggregate demand is compromised by weakened consumers and businesses, and reports like today’s confirm that. But it seems to be every other month that inflation fears flare up, and bonds trade wildly as inflation expectations are reconciled.

The US Producer Price Index, which measures inflation at the business and manufacturing levels of the economy, was 1.4% in January and 4.6% year-over-year through January. Excluding volatile oil and food costs from the readings, “Core” PPI for January was 0.3% and 1% YOY through January. These monthly “All” and “Core” numbers were higher than expected, and the Core year-over-year number being up 1% is cause for concern. The news has pushed rates higher this morning (along with $126b in Treasury auctions announced for next week), and tomorrow’s consumer inflation number will give us another key inflation signal to follow today’s.

You can click the Monthly ‘All’ and ‘Core’ PPI reports in our Data section (on the lower right side of the site) or going to our full data page, and it will display a chart where you will see the monthly see-saw as inflation rises and falls monthly, which contributes to rate volatility. A lot of this has to do with oil price volatility, which you can also see by scrolling to the Data section. On surface level, market sentiment seems to be that inflation shouldn’t be an issue for some time because aggregate demand is compromised by weakened consumers and businesses, but higher than expected reports like today’s cause markets to question that, and bonds trade wildly as inflation expectations are reconciled.

Impact of Treasuries on Rates
“Suppose They Gave a War and Nobody Came” was a 1970 movie with Ernest Borgnine and Tony Curtis (both of whom are still with us). What if the Treasury gave an auction and nobody bid, aside from Primary Dealers who must bid? That is one of the fears that drove prices down and rates up yesterday, especially with the news that China fell behind Japan to become the second-biggest holder of US Treasuries. That is not a good thing, and is an indication that the Chinese have been acting on recent complaints about US policy by unloading US debt. China was a net seller of Treasuries by $34 billion, bringing its total holdings down to $755 billion from $790 billion in November. Money talks.

Also this morning Treasury announced $126b in Treasury security auctions next week which break down as follows: $8b in 30yr TIPS Tuesday, $44b in 2yr notes Tuesday, $42b in 5yr notes Wednesday, $32b in 7yr notes Thursday. This is leading to a second day of negative MBS trading which has caused rates to rise .25% to .375%. more…

The US Producer Price Index, which measures inflation at the business and manufacturing levels of the economy, was 0.2% in December and 4.4% year-over-year through December. Excluding volatile oil and food costs from the readings, “Core” PPI for December was 0% and 0.9% YOY through December. These monthly “All” and “Core” numbers were lower than last month’s data and at the low end of the Fed’s 1-2% comfort zone for inflation, so bonds are trading more favorably on this news plus stock losses today, which helps drive rates down.

Inflation keeps changing monthly so market trading is volatile as a result. By clicking on the Monthly ‘All’ and ‘Core’ PPI reports in our Data section (on the lower right side of the site) or going to our full data page, it will display a chart where you will see this see-saw very evident. A lot of this has to do with oil price volatility, which you can also see by scrolling to the Data section. On surface level, market sentiment seems to be that inflation shouldn’t be an issue for some time because aggregate demand is compromised by weakened consumers and businesses, but some reports (like November’s PPI) cause markets to question that, and bonds trade wildly as inflation expectations are reconciled.

The US Producer Price Index, which measures inflation at the business and manufacturing levels of the economy, was 1.8% in November and 2.4% year-over-year through November. Excluding volatile oil and food costs from the readings, “Core” PPI for November was 0.5% and 1.2% YOY through November. You can view and download historical PPI data by scrolling down to our Data section on the right side of the site.

These numbers were higher than expected. By clicking on the Monthly ‘All’ and ‘Core’ PPI reports in our Data section, it will display a chart atop that section where you will see this see-saw very evident. On surface level, market sentiment seems to be that inflation shouldn’t be an issue for some time because aggregate demand is compromised by weakened consumers and businesses, but today’s report causes markets to question that, and bonds trade wildly as inflation expectations are reconciled. All this month’s measures of PPI close to the Fed’s 1-2% comfort zone for inflation, but since they exceeded expectations, bonds are worst and rates are higher.

Wells Fargo joined the other large banks in announcing plans to pay back our TARP money. Banks are complaining that they can’t attract top talent with their compensation structures capped. This is good news, since Wells called me the other day to offer me a high paying job (they said I could spel good) but I turned them down since their pay was capped. Who needs that?

TARP: Troubled Asset Relief Program – maybe that is one acronym that we can forget. Wells Fargo may avoid the label of being the biggest bank still holding bailout money when it announced that it plans to pay back its $25 billion in government loans. For those keeping track at home, yesterday they followed Citigroup, and Bank of America last week, in making that announcement. Wells will raise $10.4 billion from the markets, another $1.5 billion by selling certain assets next year, with approval from the Federal Reserve, and another $1.35 billion by issuing stock to employee retirement plans and giving stock awards instead of cash to “certain Wells Fargo team members.” Wells, and the other banks, expects this to help 2010 earnings but that it will hurt fourth-quarter financial results, reducing income available to common shareholders. more…

The US Producer Price Index, which measures inflation at the business and manufacturing levels of the economy, was 0.3% in October and -1.9% year-over-year through October. Excluding volatile oil and food costs from the readings, “Core” PPI for October was -0.6% and 0.7% YOY through October. You can also view and download historical PPI data by scrolling down to our Data section on the right side of the site.

Back in February, inflation wasn’t a concern and deflation was the primary worry. And in the last several months, it’s been a see-saw: Inflation fear in April, Inflation benign in May, fear in June, benign in July, fear in August, benign in September and October. On surface level, market sentiment seems to be that inflation shouldn’t be an issue for some time because aggregate demand is compromised by weakened consumers and businesses. But bond still trade wildly as we see-saw back and forth on these two sentiments. All this month’s measures of PPI are within the Fed’s 1-2% comfort zone for inflation. See the October CPI report for more on this topic.