Back to top

Market Commentary

Market Commentary

January 28, 2015
10-YEAR NOTES   104-00 (+07)
FN 3.5% COUPON   105-06 (+03)
SUPPORT   2.40%
Scan with your
   Today at 11:00 AM (PST) the FOMC will release their statement regarding the current state of the economy and their policy decision on short term interest rates. In December's statement the FOMC said it "expects inflation to rise gradually toward 2 percent as the labor market improves further and the transitory effects of lower energy prices and other factors dissipate". The Fed faces a difficult decision in attempting to raise rates in an environment with no inflation growth, stagnant wage growth, a declining labor force participation rate, falling energy prices and global economic declines. If the Fed raises rates too soon, without inflation/wage growth, they risk sending the economy into deflation. On the other hand, the ECB's QE decision may give the Fed more confidence in the outlook for the global economy. To get a proxy for when the Fed views as the right time for raising rates we watch for changes to the "patient" clause: "Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy". MBA Mortgage Applications fell -3.2% last week following three consecutive weeks of growth. Purchases slipped -0.1% vs. -0.6% prior (+1.0% YoY), Refinancing fell -5.1% vs. +24.2% prior (+58.4% YoY), and the average interest rate for a 30-Year conforming loan increased +3 bps to 3.83% vs. 3.80% prior (4.52% a year ago).
   Treasuries continue to be elevated from last week's ECB's announcement of a 1.14 trillion Euro stimulus plan including 60 Billion Euros a month in asset purchases from March to September of next year. The Euro has been in decline for the past six months, it ended 2014 down -12% vs. the dollar for the biggest loss since 2005, and has extended those losses into this year. In response, the dollar has climbed to an 11-Year high vs. the Euro on increased demand for U.S. assets. The U.S. Dollar Index rose to the highest since September 2003 yesterday, adding to this year's 4% increase. Another factor that boosted treasuries throughout the day was the Durable Goods Orders miss which could impact the Fed's decision on short term rates. Gold gained +0.9% on the disappointing Durable Goods data. Greek bonds continue to sink lower, for a third consecutive day, following the election of the anti-austerity party Syriza. Greece's three-Year rate jumped +183 bps to 15.86% and the yield on 10-Year securities rose +69 bps to 10.16%. Crude Oil fell yesterday to $45.14 per barrel, and continues to remain low, which should stimulate consumer spending and economic growth in the short/medium term as many are paying less at the pump. Oil slid nearly 50% last year as the U.S. pumped at the fastest pace in over three 30 years. The ruble continues to slide lower after Standard & Poor downgraded Russia's bond rating to junk; Russia was lowered one step to BB+, putting it below investment grade for the first time in 10 years. The ruble lost 0.8% yesterday to 67.3570 per dollar. Moody's rating of Russian bonds remains one step above the S&P's at the lowest investment grade.
   Yesterday, the 10-Year note rallied +1.0 tick, pulling yields down -0.4 bps to end a couple bps above resistance at 1.824%. The coupon stack compressed 0.1-0.5 tick in the production coupons led by the 4.0/3.5 swap, down -0.5 tick. MBS outperformed treasury hedges by 1.0-2.0 ticks led by the 3.5% at +2.0 ticks tighter to the basis. Short term Volatility fell -0.02 bps (3Mx10Y 84.08), and longer term Volatility declined -0.17 bps (5Yx10Y 84.88). The curve bull steepened, with 2s10s up +1.3 bps to 131.6, pulling the 20 day average to 137.6 vs. 143.8 prior. Long-end yields fell, pulling the 30-Year bond down -0.1 bps to 2.398%. Even with the 30-Year bond near all-time record low yields treasuries are still looking attractive vs. lower, and some negative, returns with foreign debt. The 30-Year current coupon fell -1.0 bps to 2.58% vs. 2.59% prior, and the 15-Year fell -1.0 bps to 1.91% vs. 1.92% prior. 15/30 swaps lost 0.1-1.0 tick in the belly coupons, led by a -1.0 tick decline in the 3.5/4.0 swap. G2/FNs compressed 1.0-3.5 ticks in the production coupons led by a -3.5 tick decrease in the 3.0% coupon. The G2/FN 3.5% swap declined to 0-02.625 vs. 0-04.25 prior. Treasuries rallied this morning in response to the disappointing MBA Mortgage Application data, pulling the 30-Year bond yield to 2.376% and the 10-Year note lost -2.0 bps. The curve has bull flattened with 2s10s down -2.6 bps with yield on the 10-Year note just below resistance at 1.798%.
This Week's Events:
01/28 MBA Mortgage Applications 04:00 January 23 - -3.20% 14.20% 16.10%
01/28 FOMC Rate Decision 11:00 January 28 0.25% - 0.25% -
01/29 Jobless Claims 05:30 January 24 300K - 307K -
01/29 Continuing Claims 05:30 January 17 2405K - 2443K -
01/29 Pending Home Sales MoM 07:00 December 0.50% - 0.80% -
01/30 GDP Annualized QoQ 05:30 4Q A 3.10% - 5.00% -
01/30 Personal Consumption 05:30 4Q A 4.00% - 3.20% -
Visit Us Online

Get Approved

Download Rate Sheet

Price & Lock

Submit Loan

Resolve Loan Conditions

Conventional Program Guidelines

Government Program Guidelines
For more information, please call:

FHA Programs
VA Programs
USDA Rural Housing
HECM Reverse Mortgage
Conforming Products
FHA Multifamily, PowerSaver

GNMA Issuer
Fannie Mae and Freddie Mac Direct Lender
Licensed throughout the U.S. and Puerto Rico
Privately Held Mortgage Bank for Over 32 Years
Excellent Underwriting / Funding Turn Times

This information is provided solely for informational use and is not intended as a trading or investment advice in any manner whatsoever. Sun West Mortgage Company, Inc. is not liscensed or registered broker or dealer and cannot provide investment strategies or recommendations. This information is provided to brokers/lenders only and may not be copied or distributed to customers or potential customers. All loans are subject to approval. Certain restrictions may apply. Listed pricing is a morning indication only. Program rates, price, guidelines, fees, costs, terms and conditions are subject to change without notice.