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Market Commentary

Market Commentary

January 14, 2015
10-YEAR NOTES   103-25 (+21)
FN 3.5% COUPON   105-10.5(+09)
SUPPORT   2.40%
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   MBA Mortgage Applications soared last week as many are taking advantage of the current low rate conditions. MBA Mortgage Applications, for the week ended January 9th, rose +49.1% vs. +11.1% prior (+29.7% YoY). Purchases rose +23.6% vs. +4.5% prior (+1.6% YoY), Refinancing rose 66.4% vs. 16.0% prior, and the average interest rate for a 30-Year conventional loan fell to 3.89% vs. 4.01% (4.66% a year ago). December’s Retail Sales data came in weaker than expected, down -0.9% vs. +0.7% prior (consensus -0.1%). Ex-autos, Retail Sales fell -1.0% vs. +0.5% prior (consensus 0.0%). The decline in Retail Sales reflects the largest monthly decline in gasoline sales since December 2008, down -6.5% MoM. Import Prices fell for the sixth straight month in December, down -2.5% vs. -1.5% prior (consensus -2.7%). Import Prices have been largely affected by falling oil prices and a strong dollar. Prices for non-fuel imported goods also fell, down -0.1%.Year-over-year the dollar is up +8.5% and has contributed to the decline in the prices of goods brought from other countries.
   Yesterday, treasuries rallied again as sinking oil prices, a strong dollar, and ECB stimulus speculation lowered the outlook for inflation and fueled consideration that the Fed may delay rate hikes. Due to the decrease in FHA MIP announced last week, we may see faster prepayment speeds in the following months and a mini-refinance boom to boost originations. The 10-Year note rallied +2 ticks, pulling yields down -0.6 bps to flirt with resistance at 1.906%. The coupon stack compressed, tightening the most in 4/3.5 swap, up +2.5 ticks. MBS underperformed treasury hedges by 1-2.5 ticks led by the higher coupons and Volatility increased 1-2 ticks. The widening basis outweighed the increase in volatility, resulting in a Libor/Swap Option Adjusted Spreads increase of +0.3-2.3 ticks led by a +2.3 tick increase in the 4.0% coupon. The curve bear steepened, with 2s10s up +1.4 bps to 137.2, pulling the 20 day average to 146.4 vs. 155.6 prior. Long-end yields rose, pushing the 30-Year bond up +1.0 bps to 2.502%. The 30-Year current coupon came in flat to the prior day’s close at 2.60%, and the 15-Year rose +1 bps to 1.92%. The G2/FN swap declined 1-3 ticks in the production coupons led by a -2.75 tick decrease in the 4.0% coupon. The G2/FN 3.5% swap declined to 0-086 vs. 0-092 prior.
This Week's Events:
01/14 MBA Mortgage Applications 04:00 January 9 - 49.1% 11.1% -
01/14 Retail Sales Advance MoM 05:30 December -0.1% -0.9% 0.7% 0.4%
01/14 Import Price Index MoM 05:30 December -2.7% -2.5% -1.5% -1.8%
01/14 Import Price Index YoY 05:30 December -5.2% -5.5% -2.3% -3.0%
01/15 Empire Manufacturing 05:30 January 5.00 - -3.58 -
01/15 PPI Final Demand MoM 05:30 December -0.4% - -0.2% -
01/15 PPI Final Demand YoY 05:30 December 1.0% - 1.4% -
01/15 Jobless Claims 05:30 January 10 290K - 294K -
01/15 Continuing Claims 05:30 January 3 2400K - 2452K -
01/16 CPI MoM 05:30 December -0.4% - -0.3% -
01/16 CPI YoY 05:30 December 0.7% - 1.3% -
01/16 Industrial Production MoM 06:15 December -0.1% - 1.3% -
01/16 Capacity Utilization 06:15 December 79.9% - 80.1% -
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