Employers Add Slightly More Jobs Than Expected – 8/3/11 Equities sold off sharply yesterday on worries about the increasing probability of a double-dip recession in the US. While the Senate and the President signed off on a deal to increase the debt ceiling, negative news on manufacturing growth spooked investors, leading to one of the biggest [...]
Debt Deal Done, Almost – 8/2/11 Just as positive news about a resolution to the debt limit debate was about to pressure mortgage rates, very weak news from the manufacturing sector sent stocks reeling and moved the bias towards bonds again. Mortgage pricing improved by about 30 basis points for most loans, almost enough to [...]
Mortgage rates dove on Friday as the shocking GDP report revealed that the US economy is much worse off than anyone expected. The economy’s growth has barely kept up with population growth over the last two quarters, and, factoring in inflation is practically moving backwards. While the headline 1.3% annual growth in the 2nd quarter was bad, even worse was the revision to the 1st quarter’s figures, which brought that quarter from 1.9% growth to a scant 0.4% growth. Describing this growth as anemic would be an understatement. The resulting surprise drove down stocks and caused Treasury rates to break through recent lows. The 10-year Treasury ended the week yielding just over 2.80%, it’s lowest in over 8 months. Stocks ended their worst week in a long time off over 5% on the week. Meanwhile, Congress and the White House failed again to agree on a plan to raise the debt ceiling.
As stocks slipped yesterday on concerns about the continued failure of leadership to muster sufficient support to pass any bill to address the debt crisis, fixed income prices improved, in spite of weak results on the 7-year note auction. The planned vote in the house on a Republican-sponsored proposal to boost the debt limit and cut spending was postponed, then later postponed again yesterday, as leadership realized it didn’t have enough votes to pass the measure. Mortgage pricing improved by almost 50 basis points on the day. Traders focused in on today’s report on 2nd quarter GDP as the next influential event.
The risk of a US Government default increased yesterday, as weekend talks between the President and Congress failed to produce any tangible results. This finally translated into changes in mortgage and Treasury pricing, with the 10-year note increasing .04% in yield and mortgages roughly 30 basis points less valuable. With little other news to move them markets started down, an ended there.
Mortgage pricing deteriorated yesterday on two principal stories: Europe’s agreement to bail out the essentially bankrupt Greek state, and the failure of the US government to arrive at any sort of agreement concerning deficit reduction and an increase to the debt ceiling. Yesterday’s economic news was mostly neutral, with the leading economic indicators in-line with expectations showing a slight improvement in conditions, and the Philadelphia Fed index slightly above expectations and also suggesting economic growth is in store.
Mortgage pricing wavered throughout the day yesterday, moving with the ebb and flow of rumor and debate on the debt ceiling. With only 13 days before the apocalypse, progress has been spotty, at best. If a solution isn’t found by midnight, will the cost of US debt pumpkin into the double digits as Greek borrowing costs have? Only time will tell, but the consensus is that a default would be catastrophic. Ultimately, rates closed marginally higher than on the prior day.
Fixed-income markets started weak yesterday on persistent doubts regarding whether the government will arrive at a deal to prevent a default on the US national debt in August. Positive economic news from home builders, who boosted housing construction starts by 14% from May to June, also helped, resulting in stock markets opening as much as 1% higher. At 1:30, President Obama made a statement indicating his opinion that congress appears to be moving in the right direction on deficit reduction and debt ceiling increase package. A group of 6 Senators across both parties is gaining momentum with a plan that closely mirrors the President’s own $4 trillion deficit reduction package announced over a week ago.