Market Commentary – 3/11/16

Posted on March 11, 2016 by Conrad Juliá

U.S. bonds yields continue to rise in response to positive economic data coming out of the U.S. along with a reinvigorated stock market and rallying oil. The 10-year U.S. Treasury yield, which is the benchmark for bonds, is now near 2% as global economic fears have subsided.

There was not much in terms of economic reporting this week. The big news came out of the European Central Bank (ECB), which announced increased economic stimulus to fend off deflation and to spur their economy.

All eyes will be on the Federal Reserve next week and on the outcome from the Federal Open Market Committee’s meeting. The feeling is the comments out of the Fed meeting will be hawkish, which is bad for bonds.

Technically, we are advising with caution to float interest rates and we are monitoring the 10-year note carefully to see if it edges beyond the psychological 2.00% barrier.

Market Commentary – 3/4/16

Posted on March 4, 2016 by Conrad Juliá

All eyes were on the February jobs report which came in better than expected this morning: 242,00 new jobs were created versus 190,000 expected. Unemployment remained under 4.90%. This overall positive employment report included a revision of 30,000 more jobs created in December and January put pressure on bond yields. With both the stock market and oil trading well again this week, mortgage interest rates responded by moving higher.

The positive jobs report coupled with a significant comeback in global equities has left the door cracked open for an additional Fed rate hike later this month. It is anyone’s guess what will happen, but the odds are increasing that a rate hike this year may be put back on the table.

Technically speaking, bonds have traded poorly, and we remain biased toward locking in loans with the 10-year U.S. Treasury note still trading well below 2.00%.

Insignia Mortgage named to the “Best of the West” for 2016

Posted on March 1, 2016 by Admin

Insignia principals, Damon Germanides and Chris Furie were ranked #8 and # 5 out of the top 20 loan originators in the West for 2016, respectively, by National Mortgage News.

Market Commentary – 2/26/16

Posted on February 26, 2016 by Conrad Juliá

U.S. bonds are not having a particularly good day after a better-than-expected Personal Consumption Expenditures (PCE) reading, which excludes volatile food and energy. The PCE year-over-year reading came in at 1.70% which is approaching the Federal Reserve’s 2% inflation target.

Rising inflation indices are bad for bond yields and as expected, the U.S. bond market is responding with rising interest rates. Adding further pressure to bond yields was a poor 7-year U.S. Treasury Note auction which was met with tepid demand.

Other economic news Friday morning included the second reading of Q4 2015 GDP. This reading came in a bit better than initially stated with an upward revision to 1%.

Oil and stocks have had a good trading week and this is also adding pressure on interest rates. As money flows back into the equities markets and other “risk on” trades, interest rate yields tend to suffer.

Based on the current market conditions, we are biased toward floating interest rates as prices remain above technical support levels. However, we continue to float with caution.

Market Commentary – 2/19/16

Posted on February 19, 2016 by Conrad Juliá

Bonds are trading decently this Friday morning even with a better-than-expected January Consumer Price Index and Core CPI readings, which strips out volatile food and energy. Stocks rallied hard this week and bond yields climbed mildly after a brutal couple of weeks of trading. U.S. employment readings remain positive despite concerns over oil, China, and worries of a potential global recession.

Technically, mortgage bonds continue to trade just above support levels. With the 10-year U.S Treasury note trading near 1.76%, interest rates remain extremely attractive and we continue to remain biased toward locking in interest rates at these low yield levels.

Market Commentary – 2/11/16

Posted on February 12, 2016 by Conrad Juliá

Falling interest rates around the globe as of Thursday, February 11th, 2016.

U.S. Germany Japan Switzerland

1.70% .19% .01% -.31%

Rising volatility in stocks, currencies and commodities have greatly benefited bond yields. The yield on the 10-year U.S. Treasury note, a benchmark for everything from mortgage rates to corporate lending, fell just below 1.60% this week, its lowest level in over a year. The two-year U.S. Treasury-note yields, a widely watched gauge of bank funding costs, also dropped significantly. Too much of a good thing can be worrisome, and folks are concerned about the factors that are driving down interest rates. The precipitous drop in global interest rates prompted Congress to question Fed Chair Janet Yellen regarding the potential adverse effects negative interest rates may have on the U.S. economy.

Yields are compressed and bank stocks have been under tremendous selling pressure lately due to various factors including concerns over oil related debt as well as zombie Euro-zone loans. The added yield squeeze is also eating into banks’ profits.

Friday brought some positive news after a brutal week for global equities. Oil and equities rallied early Friday and the European and U.S. equity markets also posted strong gains. A strong retail report for January brought welcomed good news.

With interest rates hovering near historical lows, we remain biased toward locking in loans at these levels. Technically, bonds are overbought and a strong possibility remains for a reversal or sell off in bonds, which may yield higher interest rates. Our mantra remains “a bird in the hand is worth two in the bush” when it comes to interest rates at these low levels.

Market Commentary – 2/5/16

Posted on February 5, 2016 by Conrad Juliá

It’s anyone’s guess how low bond yields can go with short-term government-guaranteed European and Japanese debt offering negative yields. The idea of a negative interest rate is probably something that none of us thought was possible. Bill Gross, the famed bond manager, seems to feel that something will have to give, saying, “In recent weeks markets have witnessed Mario Draghi of the European Central Bank (ECB) speak to ‘no limit’ to how low Euroland yields could be pushed – as if he were a two-time Texas Hold’em poker champion.” He then noted that in turn, Janet Yellen halted the Fed’s well-advertised tightening cycle at 25 basis points, at least temporarily, followed a few days later her counterpart at the Bank of Japan, Haruhiko Kuroda, decided to enter the “black hole of negative interest rates much like the ECB and three other European central banks.”

Domestically, U.S. bonds have benefited from these central bank policies with the 10-year Treasury trading around 1.84% as of Friday afternoon (2/5/16). A mixed job report further benefitted mortgage bonds this morning. The jobs report for January came in at less than 40,000 than predicted. However, the jobless rate did fall to less than 5%. Volatility in various sectors including global equities, the oil patch and loans made to the oil industry all continue to weigh on the market as well. These factors too are helping to push yields lower.

Though rate increases are on the horizon, experts believe the Fed will hike rates no more than four times in 2016.

Technically, bonds are overbought, and we remain biased toward locking in interest rates with yields at these levels.

Alt-A Loans Get New Respect

Posted on February 2, 2016 by Conrad Juliá

As a mortgage broker specializing in complex jumbo loans in California, I read with interest the article from the Wall Street Journal on “Alt-A” loans (Remember ‘Liar Loans’? Wall Street Pushes a Twist on the Crisis-Era Mortgage, February 2, 2016). I took this as a sign of encouragement for the many self-employed borrowers with sporadic income, or less than perfect credit.

These borrowers have had little success obtaining financing from large banks, even when putting down payments of over 40%! Today’s “non-qualified mortgages” do not resemble the “liar loans” of the past. These days, both borrowers and lenders must invest more effort analyzing complicated loan terms that are structured to compensate for factors such as unpredictable income, or lower credit scores.

We at Insignia Mortgage have built strong relationships with regional California-based lenders who will underwrite these types of loans, often offering very favorable interest rates (example: 5-year fixed 3.218% to 3.718% APR). This WSJ article reinforces the ideas that investors are starting to realize these loans are not all bad. Wall Street certainly seems to be warming up to these loans.

Market Commentary – 1/29/16

Posted on January 29, 2016 by Conrad Juliá

Interest Rates Lowered. Excellent Refinance Opportunity.

Slow growth in 2015 now looks like no growth in 2016. The U.S. 4th quarter Gross Domestic Product (GDP) reading came in Friday morning at a very anemic .7% register with a forecast of only 2.40% for 2016. These numbers, while backward-reading, confirm some of the suspicions that both the U.S. and the world economy are slowing. Interest rates responded favorably to this poor GDP number (remember that bad news is good for bond yields) with the 10-year U.S. Treasury touching 1.94%, WOW. Bonds were further stoked by the surprise move from the Bank of Japan to move short-term interest rates into the negative in its effort to kickstart the economy by forcing banks to lend, and consumers to spend.

There was one bright spot today. The Chicago Purchasing Manger Index (PMI) reading was 55.6 reading, which indicates manufacturing expanded and is an encouraging sign for the U.S. economy.

The Fed spoke earlier in the week and announced no change in short-term interest rates. Given the poor start to 2016, most forecasters do not believe there will be another rate hike by the Fed this year. Given that the Chinese economy has slowed, the dollar continues to surge and oil has remained lower than expected, it is hard to imagine a significant rise in interest rates. The world economies seem to be addicted to low interest rates with Central Bankers willing to provide the juice needed to propel equities higher and push yields lower. How this all ends is anyone’s guess.

Given the 10-year U.S. Treasury is below 2.00%, we are biased toward recommending locking in interest rates at these levels.

Market Commentary – 1/22/16

Posted on January 22, 2016 by Conrad Juliá

The global equity market began cutting some losses on Thursday and into Friday morning after another very volatile week for stocks. The positive late week turn-around in equities may be attributed to both Japanese and European central bank policy statements of more economic stimulus in the near term.

Oil remains front page news with prices dropping again earlier in the week before recovering. Oil is trading above $31 per barrel. One would think that low oil prices would be a boom for businesses and for the consumer. However, the pundits have indicated the drop in oil and other commodities as cause for concern from both a deflationary and economic standpoint. The markets want inflation as it is a positive economic indicator of future growth, and oil is the indicator everyone is looking at.

The 10-year U.S. Treasury yields dropped to around 1.94% mid-week in response to the chaotic markets. This will spur more refinancing activity in the short term.

There was some very positive news on the housing front. December existing home sales surged nearly 15% from November to an annual rate of $5.46 million.

Given the move lower in yields, we are biased toward advising clients to lock in interest rates at the current levels. Should volatility subside, interest rates may suffer an increase in yields.