US national Debt is $16,888,906,375.00 and climbing! (http://www.usdebtclock.org/)
The bond market’s month-long plunge got a bit of a bounce back in the last couple days. The Dow last traded at 14,987. The S&P 500 is trading at 1,613. Gold prices continued to slide this week shedding more than 13% since the start of June and are now down almost 30% since the beginning of the year, propelled lower in part due to investors’ concerns that the Fed will soon trim its $85 billion-a-month bond-buying program. It’s trading are at $1,226 an ounce, while oil futures at $97.06 a barrel. Gas prices, (Regular in El Dorado Hills, Costco, AM/PM), are at $3.65/Gal.
Yields on 10-year Treasury notes, which move inversely to prices, last traded at 2.52%. 30-year Treasury Bond yields last traded at 3.54%. Rates on 30-year fixed-rate mortgages stayed a hair above 4% this week. Just a month ago, they were below 3.5%. Since May 8th Fannie Mae MBS (Mortgage Backed Security) with 3% coupons has fallen nearly 7 points to their lowest levels in a year. MBS yields are interest rates at which banks sell their loans into Fannie Mae and Freddie Mac bond programs. Rising yields mean higher consumer-mortgage rates.
The FNMA 30-year fixed 3.0% coupon, containing 3.75-4.125% mortgages, pretty much the benchmark or how rate sheets are priced these days is currently trading at 100.375,. Basically each percent change in the price of the security translates to the price (or points paid or credited) of the mortgage rate. The higher the number (price), the better the rate.
In economic news this week; The readers digest version is everything hinges on what the Fed will or will not do and when. And the Fed Gods are creating more uncertainty in the market just by opening their mouths. Every time one of them speaks the markets react. Most of the selling in the last few weeks is from “program” trading: that is traders will put in sell orders below the market and when they are triggered it causes a domino effect.
Mortgage rates soared over the past week, after panic set in after the Fed suggested it could start tapering bond purchases this year, with 30-year fixed-rate mortgage rate hitting the highest level in almost two years. The average rate for the 30-year fixed-rate mortgage rose to 4.46% in the week ending June 27, the highest rate since July 2011, and up from 3.93% in the prior week, Freddie Mac said in its weekly report. The latest weekly result is also the first time the rate has reached above 4% since March 2012.
The central bank’s $85-billion-a-month bond-buying program has helped prop up stock prices and keep interest rates ultralow. Bernanke said last week that the central bank would likely scale back its bond buying later this year and end the program when the unemployment rate was near 6%, perhaps by mid-year 2014. The problem is that the Markets didn’t pay attention to the “ifs” in his statement and took it as fact that the Fed will be pulling back on accommodative policy. There is a big rule in securities trading; “Sell the rumor, and buy the fact.” And the markets sold off big-time on the rumor. There are some really big “ifs” in the Fed’s statement: Bernanke said the Fed “could begin” to taper its purchase of bonds later this year, “if the economy continues to improve” as Fed officials expect and “if everything goes well.”
The Fed expects the unemployment rate, now at 7.6%, to fall to as low as 6.5% by the end of 2014 and perhaps even dip below 6% in 2015. Unless we get employment numbers above 250,000 every month for more than six months and GDP growth above 4.5% (currently less than 2%), this simply isn’t going to happen folks. But markets trade on perception first and facts second.
A Federal Reserve official this morning opend his mouth saying that the central bank’s bond purchase program may be scaled back in September. In a speech to the Council on Foreign Relations, Fed God Jeremy Stein used only September as the hypothetical start date for slowing the pace of purchases. Stern’s remarks indicate he is eyeing September for making a decision about changing the pace of purchases. In his speech, Stein suggested markets should not to focus on fresh payroll numbers that come out just before the meeting, saying any decision by the Fed to slow the pace of its currently $85 billion-per-month asset-purchase program will be based on accumulated trends since the program started last fall, not the most recent data. Stein said the Fed didn’t want to be a “prisoner” of the market.
Markets are now pricing in more rate hikes than had been assumed before last week’s policy meeting and news conference by Bernanke. Fed fund futures imply at least three quarter-point rate hikes, and possibly four, by the end of 2015. Earlier this week, Dallas Fed President Richard Fisher likened market participants to “feral hogs” for pushing bond yields higher.
The mood of U.S. consumers climbed to a five-year high in June, according to an index released Tuesday that showed expectations for the future climbing significantly. The Conference Board’s consumer confidence index jumped to 81.4 in June, the best reading since January 2008 and up from 74.3 in May. The final June reading of the University of Michigan and Thomson Reuters consumer-sentiment index declined to 84.1 from a final May reading of 84.5. May’s reading was the highest since July 2007.
The U.S. economy grew slower in the first quarter than previously believed, mainly because of softer spending on consumer services such as health care, takeout food and travel. Gross domestic product rose by just 1.8% in the January-to-March period, down from a prior estimate of 2.4%, the Commerce Department said in the last of three regular updates. The reduced pace of growth in the first three months of 2013 calls into question the Fed’s assertion last week that the economy has improved significantly since last fall.
U.S. house prices saw the strongest monthly jump on record, while new-home sales reached a five-year high. Pending home sales jumped in May to reach a six-year high. The NAR’s pending home sales index climbed 6.7% to 112.3 in May, from 105.2 in April. The index was up 12.1% from May 2012 levels. In the Eldorado Hills to Shingle Springs area this year, listings have grown from 149 in January to 222 in May or 48%, while sales have gone from 70 to 147 in the same period.
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