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This report covers weeks 60-61 of a mortgage bond purchase program by the Federal Reserve—here’s weeks 57-59. In the last two weeks, the Fed bought $21b net of mortgage bonds as follows: $11b Feb 18-24, $10b Feb 24-Mar 3. For the past 6 months, the Fed has focused weekly buying on 4.5% and 5% coupons (tables below), which represent outstanding loans in the 4.75%-5.125% and 5.375%-5.75% ranges respectively. This makes sense since most of the new bond supply coming to market from new loans being made are at those rate ranges.

Rates have held below 5% since dipping last week, but are advancing higher this morning’s release of the February jobs report which was interpreted as positive despite the economy losing 36k jobs and forced-into-part-time workers increasing by 500k. Rates are still just a touch above all-time lows, but how long will it stay this way? more…

This report covers weeks 57-59 of a mortgage bond purchase program by the Federal Reserve—here’s week 56. In the last three weeks, the Fed bought $34b net of mortgage bonds as follows: $12b Jan 28-Feb 3, $11b Feb 4-10, $11b Feb 12-17. For the past 5 months, the Fed has focused weekly buying on 4.5% and 5% coupons (table below), which represent outstanding loans in the 4.75%-5.125% and 5.375%-5.75% ranges respectively. This makes sense since most of the new bond supply coming to market from new loans being made are at those rate ranges. Despite Fed buying, mortgage bonds lost ground this week and rates are higher. The selling came after higher than expected business inflation, some rate hike bias signals in Fed minutes from their last FOMC meeting, and a confirmation of that bias in the form of a .25% hike to the Discount Rate which is now at .75%. The Discount Rate is the the rate at which the Fed lends to banks, and this is the first move since the crisis began toward weaning banks off of cheap Fed funds.

How Long Will Current Rates Last?
The purpose of the Fed mortgage bond buying program initiated January 1, 2009 is to elevate mortgage bond prices which pushes rates down. It’s very likely that the record rate low markets hit on November 25, 2009 will remain the record low. The Fed will continue buying through March 31, 2010 until they reach their $1.25t budget (see program-to-date tally below), but as we move into the program’s final weeks, we’re already seeing rates rise as markets realize there will be one less large buyer of mortgage bonds. more…

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…

A San Francisco Chronicle mortgage rate story yesterday does a good job simplifying the factors affecting mortgage rates as we move through 2010. It’s a useful consumer-friendly piece on how the Fed’s mortgage bond program works, when it’s ending and what might happen when it does end. It also includes updates on the homebuyer tax credit, FHA loan guidelines, and loan modifications. The Basis Point contributor Julian Hebron was quoted in the story and is excerpted below.

Click the Mortgage Bonds tag below for lots of weekly coverage we do on this topic. Our next report on the Fed’s mortgage bond program and what it means for rates will be this Friday, February 19. more…

Cash-Out vs. Cash-In Refi Stats
Remember when cash-out refinancing was the bulk of our business, and any investor who would tweak their price slightly on this product would either see all or none of the business? Four or five years ago, that category of loan hit 88%, which, according to Freddie Mac, put another way, means that 9 out of 10 refi borrowers were increasing their loan balance! Now, however, the trend has moved in the opposite direction: in Freddie’s latest quarterly survey of refinancings, 33% of homeowners put cash into the deal to lower their mortgage balances, which was the highest ever, and cash-out refi’s are down to 27%. And why not, IF you have the cash – you’re certainly not earning much on it in the bank – and if you’d like to qualify for a better rate by lowering your LTV. Columnist Ken Harney points out that it is one form of savings plan – just like it used to be!

Treasury Auctions Watering Down Bond Market
Fixed income securities weren’t helped by the $81 billion of securities to be sold this week, on top of the weather issues. The 3-yr auction was yesterday, 10’s today, 30’s tomorrow. The only scheduled news for today is the Trade Balance numbers. more…

For the past three weeks, rates have closed market trading days within .25% of record lows. But the intraday rate swings have been dramatic as mortgage bond traders sort through economic data releases.

Case in point: how rate markets reacted to today’s Jobs Report. Stocks rallied and mortgage bonds (that rates are tied to) sold off on the initial reaction to unemployment decreasing from 10% in December to 9.7% in January. But the report also said that actual January job losses of -20k were greater than the 15k new jobs estimates called for, and December’s previously reported -85k job losses was revised up to -150k. Markets seemed to realize this as the trading day continued because stocks went negative and bonds rallied.

All told, mortgage bonds traded in a 68 basis point range today, which caused rates to trade in a .25% to .375% range as lenders issued new rate sheets throughout the day (Sidebar: can we still say “rate sheets” in this online era). more…

This was week 56 of a mortgage bond purchase program by the Federal Reserve—here’s week 55. From January 21 to January 27, the Fed bought $12b net of mortgage bonds. This is just above the weekly low for the entire program set four weeks ago with $9.3b in net buys, and clarifies a trend of less buying as the Fed’s budget runs low. For the past 4.5 months, the Fed has focused weekly buying on 4.5% and 5% coupons (table below), which represent outstanding loans in the 4.75%-5.125% and 5.375%-5.75% ranges respectively. This makes sense since most of the new supply from new loans being made are at those rate ranges. Long-term mortgage rates were steady this week as Congress reconfirmed Fed chairman Ben Bernanke and the FOMC acknowledged ’subdued’ inflation.

How Long Will Current Rates Last?
The purpose of the Fed mortgage bond buying program is to elevate mortgage bond prices which pushes rates down. It’s very likely that the record rate low markets hit on November 25 will remain the record low. The Fed will continue buying through March 31, 2010 until they reach their $1.25t budget (see program-to-date tally below), but as we move into this final two months, we’re likely to see private mortgage bond investors trimming positions which also creates upward rate pressure. more…

This was week 55 of a mortgage bond purchase program by the Federal Reserve—here’s week 54. From January 14 to January 20, the Fed bought $12b net of mortgage bonds. This is just above the weekly low for the entire program set three weeks ago with $9.3b in net buys, and a trend is emerging for less buying since the Fed’s budget is running low. Below is a breakdown of the budget-to-date and also buying this week by coupon and agency. The Fed continued focusing on 4.5% and 5% coupons for the fourth straight month, which represent outstanding loans in the 4.75%-5.125% and 5.375%-5.75% ranges respectively. This makes sense since most of the new supply from new loans being made are at those rate ranges. Rates improved this week as mortgage bonds traded higher and stocks sold off on questionable bank earnings and the threat of new bank regulations.

How Long Fed Rate Stimulus Will Last?
The purpose of the Fed mortgage bond buying program is to elevate mortgage bond prices which pushes rates down. It’s very likely that the November 25 record rate low that markets hit will remain the record low. The Fed will continue buying through March 31, 2010 until they reach their $1.25t budget (see program-to-date tally below), but as we move into this final three months, we’re likely to see private mortgage bond investors trimming positions which also creates upward rate pressure. more…

This was week 54 of a mortgage bond purchase program by the Federal Reserve—here’s week 53. From January 7 to January 13, the Fed bought $14b net of mortgage bonds. This is just above the weekly low for the entire program set two weeks ago with $9.3b in net buys. Below is a breakdown of buying by coupon and agency. The Fed continued focusing on 4.5% and 5% coupons for the fourth straight month, which represent outstanding loans in the 4.75%-5.125% and 5.375%-5.75% ranges respectively. This makes sense since most of the new supply from new loans being made are at those rate ranges. Rates improved this week as mortgage bonds traded higher on weaker retail sales and tame consumer inflation data.

How Long Fed Rate Stimulus Will Last?
The purpose of the Fed mortgage bond buying program is to elevate mortgage bond prices which pushes rates down. It’s very likely that the November 25 record rate low that markets hit will remain the record low. The Fed will continue buying through March 31, 2010 until they reach their $1.25t budget (see program-to-date tally below), but as we move into this final three months, we’re likely to see private mortgage bond investors trimming positions which also creates upward rate pressure. more…

This was week 53 of a mortgage bond purchase program by the Federal Reserve—here’s weeks 51-52. Between December 31 and January 6, the Fed bought $12b net of mortgage bonds. This is just above the weekly low for the entire program set last week with $9.3b in net buys. Below is a breakdown of buying by coupon and agency. The Fed continued focusing on 4.5% and 5% coupons for the fourth straight month, which represent outstanding loans in the 4.75%-5.125% and 5.375%-5.75% ranges respectively. This makes sense since most of the new supply from new loans being made are at those rate ranges. Rates moved up about .2% in the past week as markets feel OK about economic recovery and traders realized that we’re in the final stages of Fed rate support.

How Long Fed Rate Stimulus Will Last?
The purpose of the Fed mortgage bond buying program is to elevate mortgage bond prices which pushes rates down. It’s very likely that the November 25 record rate low that markets hit will remain the record low. The Fed will continue buying through March 31, 2010 until they reach their $1.25t budget (see program-to-date tally below), but as we move into this final three months, we’re likely to see private mortgage bond investors trimming positions which also creates upward rate pressure. more…