PRICING TODAY

   KEY ITEMS LAST WEEK

·         Mortgage bonds and home loan rates ended the week about where it began. 

·         Bonds and home loan rates began the week looking good - and remembering that inflation is bad news for both Bonds and rates, they were helped along by good news on the inflation front. Inflation at the wholesale or producer level remained tame in May, and at a consumer level, inflation readings came in lower than expected, with a year-over-year reading at its lowest level since 1950. These are good signs that inflation hasn't become an issue yet. However, inflation will be a concern down the road, due to the massive stimulus being injected into the economy. 

·         Also helping Bonds rally in the early part of last week was the fact that the New York State manufacturing index came in weaker than estimates, indicating that the US economy is still very weak. And since bad economic news often causes money to flow from Stocks into Bonds, this piece of news helped Bonds start the week on an improving trend.  Housing Starts rose a whopping 17% in May to come in better than expectations. In addition, Building Permits, which are a sign of future construction, also came in better than expected. These are good signs that the affordable home prices, tax incentives and low home loan rates are attracting buyers to the market. 

·         Bonds and home loan rates reversed course midweek and worsened, as money see-sawed back over to Stocks. They were also pressured to worsen by the enormous amount of Bond supply hitting the markets - as too much supply of anything will naturally cause the price to move lower...and in this case, has caused home loan rates to move higher. Bonds have worsened when additional supply has been announced, causing home loan rates to climb.  While the Fed is continuing to purchase Mortgage Backed Securities, their efforts are just not enough to absorb the flood of new closed and securitized mortgages that are hitting the market after the heavy refinance activity recently - not to mention all the Treasury Securities being auctioned in order to pay for all the stimulus plans 

TODAY’S MARKET

·         Currently, the Mortgage Bonds market is UP 31 bp’s. 

·         The incredible volatility continues, Mortgage Bonds appeared out of favor and damaged early Friday, however, the technical indicators showed that support was being tested and prices have since rallied 125 bp from when some lenders came out with pricing on Friday.  But before we break out the party hats, Mortgage Bonds are now within a whisker of a tough ceiling of resistance at their 200-day Moving Average.  Lets remember that there is still heavy supply coming to the market from Treasuries as well as Mortgage Bonds from recent refinance closings.  This means that volatility is likely to remain high and we also have to be very mindful of another sharp reversal lower like we had last Wednesday.  We wouldn't be surprised if prices reversed off resistance, and therefore, we all need to be on guard and prepared should this happen. 

ECONOMIC NEWS THIS WEEK

·         We get an update on consumer and business consumption and buying behavior via the Durable Goods Report, which shows data on items that are non-disposable, such as cars, furniture, appliances, games, cameras, business equipment, etc. Thursday brings a read on the economy with the Gross Domestic Product (GDP) Report, which is the broadest measure of economic activity along with the weekly Initial Jobless Claims report. Last week's report showed that continuing claims fell by 148,000 to 6.69 million, which is the largest one-week drop since November of 2001. Jobs are vital to the economy strengthening, so it will be important to see what this week's report indicates. 

·         This week we also have the Fed's next regularly scheduled Federal Open Market Committee meeting, followed by their Policy Statement and Interest Rate Decision coming on Wednesday afternoon. It will be important to hear the Fed's comments on the economy and inflation. And speaking of the Fed and inflation, the Fed's favorite gauge of inflation, the Core Personal Consumption Expenditure (PCE) index found within the Personal Income Report, will be released on Friday. 

·         Economic Calendar:

·         Monday            

·         Tuesday            Existing Home Sales

·         Wednesday       FOMC Meeting, Durable Goods Orders, New Home Sales, Crude Inventories

·         Thursday          Gross Domestic Product (GDP), Jobless Claims

·         Friday              Personal Consumption Expenditures (PCE), Personal Income and Spending, Consumer Sentiment Index

   If you have any questions or need scenario’s run please call me!

 Warmest regards,

Matthew A. Frey
Bankers Funding Company
Cell: 949.632.5682
Email: Matthew.A.Frey@bankersfundingcompany.com

www.matthewfrey.com