The bond market was trading higher in the early part of the day but they are losing ground as the day progresses.
Some interesting bit of news...yesterday I told you that several of the investment companies had reported good earnings. Today, Morgan Stanley reported profits above the market expectations. Does this mean that the collapse of Bear Stearns which dealt heavily in sub-prime mortgages is an isolated case? I’m not an economist but from my view, I sure hope so but only time can tell.
The other news that is driving this good bond market is the Office of Federal House Enterprise Oversight (OFHEO) has changed Fannie Mae and Freddie Mac’s special capital restrictions. Fannie Mae and Freddie Mac though public companies are still regulated by the Federal government and in turn have to follow the restrictions placed on them by the Federal government.
The restriction or guideline that was lifted was the special capital restriction. This will allow Fannie and Freddie to now buy more mortgage bonds which will pump $200 Billion into the mortgage market.
Again, remember, that even with this good news, historically, after a Fed Fund cut, the bond market reaction is normally negative so interest rates may go up. And with lenders are still a bit jittery, this may and can increase interest rates mid-day.
In the meantime, I am available to help you decipher the market conditions and help you make informed decisions.
Until next time, make every day an inspired day!
Betsy Moore
betsy@mooremortgagesolutions.com
206-331-2749
Today is the opening day of baseball, the great American pastime. And so far, the markets have started out with a slow pitch. No big outs and no home-runs to cause the market to have one of those volatile days.
Treasury Secretary Hank Paulson talked this morning about the Federal Reserve having more responsibility over the financial markets. At present, it is talk as it will take Congress time to work out all the details though there are members of Congress who have already started this process.
Also San Francisco Janet Yellen talked at noon, EST, about her read on the housing market. Her talk, though I haven’t been able to get a take on what she said, has not moved the markets.
Overall, the market today seems to be moving along with no big ups or downs. Though tomorrow, the Institute for Supply Management will release their report. This is a survey of trade manufacturers’ sentiment. The expectation is that it will be lower than last month’s which will be good for the bond market.
And then on Friday, the Labor Department will release March’s employment rate. The expectation is that the number of lost jobs will increase and depending on what that number is, it can affect the overall markets.
Until next time, make every day an inspired one!
The Core Personal Consumption Expenditure (Core PCE) was reported at
0.1 matching economic analyst’s expectation.
Why is this important? This is the Federal Reserve’s most favored measure of inflation. Their desired target zone for this leading indicator of inflation is 1% - 2%. When today’s report is factored in for the year, the year over year Core PCE is 2.0%.
Of course, this makes the bond market very happy as the bond market never looks kindly on inflation.
The other economic reports for today, Personal Income, Personal Spending, and Consumer Confidence, were all near or matched expectations.
We should have a somewhat calm day today but next week may be another roller coaster as several economic reports will be delivered everyday except for Wednesday which has the potential to move the markets.
Will today be another day like it has been in the last week or more in the market?
As the markets opened this morning, we had a bad reading on Durable Goods. This is pushing the Bond Market up which is good for interest rates.
New Homes Sales came in about where the economic analysts expected it to so that didn’t affect today’s market.
But to add to today’s possible volatility, two Federal Reserve members will be speaking. Chicago Fed President is speaking as I write this but the big potential mover is Dallas Federal Reserve President “Loose Lips” Fisher. He has voted against the Fed cuts and each time he has spoken, he tends to move the bond market in a negative way. His main warning is always of inflation. He speaks at 1:30 pm EST. This afternoon’s market may be very rocky so hold on to your seats.
It seems like we will stay in this volatile market for the time being.
The market opened yesterday with news that February Housing Sales figures were better than expected--January’s figure was 10.3 while February was 9.6. Though this is good news, the market was expecting the figures to be worse. This, in turn, started a rally for stocks causing money to be taken out of the bond market.
Today the market opened with news that the Consumer Confidence for March was at 64.5. The market expected 73.4. This is a 35 year low. But it caused the stock market to lose money and the bond market to gain.
Unfortunately, the gains that we have witnessed this morning are starting to lose ground. We will probably see some see-sawing back and forth until Friday when the next important news comes out.
Friday, the Personal Consumption Expenditures (PCE) and Core PCE will be reported. The Federal Reserve looks closely at this report as it is their favorite gauge of inflation. And with the Fed lowering the Fed Fund Rate for the sixth time in a row, the bond market will be looking closely at this figure as well. Remember, inflation is the arch enemy of the bond market.
The Federal Reserve cut the Fed Fund Rate by .75% making the Fed Rate now 2.25%. The stock market loved this cut as the Dow climbed on the news. Even the financial stocks are doing well today as several of the financial companies reported better than expected profit reports.
While the stock market rallied, the bond market lost ground. Remember, the bond market sees the lowering of the Fed Fund Rate as inflationary. And it is the bond market that dictates the long term interest rates.
Even with all this volatility going on, it is still a good time to buy a home. Prices are down and overall, interest rates are low.
As always, I am available to help you decipher the market conditions and help you make informed decisions.
This past month or so has seen swings both in the stock and bond markets.
Between companies coming close to bankruptcy to the Federal Reserve stepping in, it has been one very bumpy ride.
And tomorrow, we may see more of the same. But let’s back up a little bit.
At the beginning of last week, Bear Sterns, one of the investment brokers, started to lose investor confidence as to whether they could cover their subprime mortgage-backed securities. And as market news pundits talked about whether Bear Sterns had enough money to cover their margin calls, nervous investors started pulling their money out as creditors started to call in their margins.
By the end of the week, Bear Sterns was running the risk of losing their liquidity. JPMorgan came to their rescue by providing an avenue for Bear Sterns to access the Federal Reserves lending window. This window can normally be only access by banks.
But over the weekend, the run got worse so to save Bear Sterns from bankruptcy, JPMorgan purchase a majority share of the company.
Also over the weekend, the Federal Reserve opened their discount window to all non-banking firms. At the same time, they also lowered the discount rate by .25%. The discount rate is the rate that the banks can borrow from the Federal Reserve.
Tomorrow, the Federal Reserve will be having their scheduled meeting. Wall Street is betting that they will lower the Fed Fund Rate by 1.0% with another cut to come at their next scheduled meeting in April.
What effect will this have on long-term interest rates? It’s hard to say. Normally when the Fed lowers their rate, the bond market reacts negatively as it sees this as inflationary and interest rates go up. But we may see a dip in interest rates for a part of the day or a couple of days like we did in January.
Whatever the Fed's decision is tomrrow, if you are a part of my database, you will receive a notice as to the their decision.
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