Danny Salas

Chico, CA Interest Rates Market Report – Economic Influences – July 15th, 2008

Higher Inflation Causing Higher Rates

Mortgage backed securities are about 71 basis points higher than last week.
That means that their yields went down and therefore interest rates.  So, last weeks advice to float was right on target.  You’d better have an itchy trigger finger on that lock button though…as this market is completely unpredictable and volatile. 

Iran shot off missiles this week capable of reaching Israel. 

This, not only is quite alarming and concerning, but creates a lot of uncertainty and instability to the market as well.  We’ll continue to watch this story closely and see how it affects oil prices, the market, and human beings in general. 

Right after I wrote this article, last week, mortgage backed securities moved upwardly above the 25-Day moving average.  Once it broke through that tough layer of resistance, the 25-Day trend line became a nice layer of support.  Then the very next day we broke through the 50-Day moving average.  Good news for rates.  The very next day, however, Initial Jobless Claims moved down by 58,000 to 346,000.  This is the lowest number since April and bonds reacted negatively with this labor market surprise. 

For the very first time in history, Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke spoke to the House Financial Services Committee regarding ways to amend the current financial regulatory system to avoid future crises.  Mortgage Backed Securities moved up to the 200-Day moving average, but quickly bounced off of it.  This is an extremely stubborn level of resistance and locking at that high level was the best opportunity to lock this past week.  It was only back in September that we were able to move above this line very briefly.  

Government Take-Over of Fannie Mae & Freddie Mac?

Two big deals happened this past week that need mentioning.  First, FannieMae and FreddieMac have been threatened with a government controlled take over.  So, their stock prices tumbled 40%.  Second, IndyMac Bank was taken over by the FDIC and closed their doors.  Their customers got wind of a senators comments that they might need to be rescued and they flocked to the bank, withdrawing over $100 Million a day until FDIC had to rescue their depositors.  IndyMac Bank was a bank that specialized in “lite doc,” “no doc” loans and they, obviously, were hit hard by the credit crises.  We’ll keep a close eye on the Fannie/Freddie issue in the coming weeks.  This caused rates to increase. 

The next Monday, Treasury Secretary Paulson asked Congress for the ability to buy unlimited stakes in FannieMae and FreddieMac.  The Federal Reserve indicated that it would lend directly from the Central Bank to Fannie/Freddie to alleviate a collapse in confidence.  The Fed is asking Congress to increase the $2.25 Billion line of credit that these companies currently have.  This caused bond yields to increase again and play with the 200-Day and 100-Day moving averages.   

Investors Getting Concerned?

Tuesday saw investors somewhat weary of the Treasury’s plan and stock prices started to falter.  Generally, you’d see money go into bonds and mortgage backed securities, however, with the Producer Price Index showing wholesale inflation at 1.8% and the year-over-year PPI ending at 9.2% rates started to deteriorate. 

Next week we’ll inspect the FOMC minutes from their latest meeting.  It’s a crazy market out there.  You should be working with a serious professional watching your interest, with interest!  Until next week…

Chico, CA Interest Rates Market Report – Economic Influences – August 21st, 2007

Global Crises Brewing?

Foreign Interest in US Bonds Secure…For The Moment

Well, did you guess correctly, as to where you thought interest rates were going?  Last week I let you make the call.  As, we are in unchartered waters, regarding the real estate and interest rate market.  Even though the Consumer Price Index (CPI) for July matched expectations and the Core CPI which takes out energy and food prices also matching expectations, and low gas prices spurring a decrease in inflationary pressures, we should have seen bonds move nicely upwardly, but they barely moved on that information.  This is really important:  Net Foreign Purchases of US Securities for June were $121 Billion.   This shows us that the foreign market is still interested in our bonds.  If this continues, it will help long term interest rates. 

Housing Starts was reported at an annual rate of 1.381 million.  This was below expectations as well as new building permits.  The initial jobless claims was the highest level seen since June 16 and this is the third week in a row that we’ve seen higher than expected jobless claims.  A sign that the labor market is loosening up and waged based inflation may become under control.  This would also help interest rates, as inflation is interest rates worst enemy.

Don’t Follow The 10-Year Treasury

Also very interesting to note:  Most mortgage professionals will follow the 10-Year Treasury Note Yield (T-Bill) to find out if interest rates are moving upwardly, or downwardly.  A COSTLY mistake!!!  On Thursday, August 16, Mortgage Bonds were trading at 25 basis points lower than when they opened.  Lower values mean higher yields, or higher interest rates.  So following Bonds, you’d see that it may be prudent to lock in a borrower.  However, the 10-year Note was trading 62 basis points higher then when trading opened.  Higher cost means lower yields, so someone following the 10-Year Treasury note would THINK that rates should be getting lower…but that’s simply not the case.  Mortgage interest rates follow (as it seems obvious) Mortgage Backed Securities. 

FED Lowers DISCOUNT RATE

We had a nice surprise to help this credit crisis that we’ve been experiencing as of late.  The Federal Reserve lowered their Discount Rate by .50% to 5.75%.  The Discount Rate is the rate by which the Fed lends money directly to commercial banks, credit unions, and savings and loans.  It’s different than the Fed Funds Rate that I generally write about.  By lowering this rate, banks have the opportunity to borrower at lower rates, enabling them to free up funds to close more loans.  Also, instead of letting banks borrow over night, they are extending the borrowing period for thirty days.  Again, very interesting.  This enables banks to be able to position their loans and hope that investors start feeling better about purchasing these loans in the secondary market. 

Global Crash?

Recently, there is concern over a German banking crisis.  Also, it’s rumored that a British Insurance company had to borrow funds from the Bank of England to be able to fund loans.  This is a global situation people.  It’s truly something that you should be reading about every day.  Remember when I mentioned that a Senator had suggested that we increase the conforming loan limits from $417,000 to a higher figure?  As of Tuesday, Ben Bernanke was meeting with Power’s that Be to see if that’s exactly what Congress and the Senate should do…help banks have the backing of the federal government to buy more loans to help with this current liquidity crisis.  We’ll have to wait and see what happened in next week’s article…until then…