Below is a collection of articles, news, and announcements associated with our industry.

Posts Tagged ‘MBSQuoteline’

Special Update: Yellen’s High-Pressure Economy

Friday, October 14th, 2016

chart onlyIn a speech this afternoon, Fed Chair Yellen surprised investors with a potential new twist on U.S. monetary policy. Yellen put forth the possibility that a “high-pressure economy” may be the best approach to repair the damage done during the financial crisis. This would involve waiting longer in the business cycle than in the past to raise the federal funds rate. She acknowledged that this approach would run the risk of inflation rising above their 2% target level. Some of the hoped for goals of this twist for longer loose monetary policy would be to encourage business investment and to increase the number of workers who return to the labor force. The possibility of Fed policy which tolerates higher inflation caused long-term bond yields, including MBS, to rise.



Special Update: ECB Comments Hurt MBS

Wednesday, October 5th, 2016

logo shape onlyComments from an unnamed official at the European Central Bank (ECB) caused global bond yields to rise today, including U.S. MBS. The official said that a “consensus” was being formed to gradually taper the ECB’s bond buying program when they decide that it’s time to conclude it. The plan would be similar to what the U.S. Fed did to end its bond buying program. The ECB’s program is currently set to expire in March 2017. At the last meeting in September, some investors were disappointed that the ECB did not announce an extension to the program. According to the ECB, the decision about when to end the program will depend on the performance of the economy. The next ECB meeting will take place on October 20. The added demand for bonds from central banks around the world has helped push down yields. Today’s comments caused investors to reduce their expectations for additional stimulus from the ECB, which was negative for both stocks and bonds.



Special Update: Fed Meeting

Monday, September 14th, 2015

BlogTalkRadio SummaryFed day is coming up on Thursday. The Statement will be released at 2:00 ET, and Fed Chair Yellen’s press conference will follow at around 2:30 ET. Fed members appear divided about raising the federal funds rate at this meeting. Investor expectations are mixed as well. With no apparent consensus, whatever the Fed decides will likely cause a significant reaction in the markets. More important than the decision about hiking rates may be what investors learn about the Fed’s view of the economy and how that may influence future Fed policy. 

What impact will this Fed meeting have on mortgage rates? The answer is not at all clear. It will depend on how the Fed’s decision and comments alter investors’ outlook for future Fed policy.



Special Update: Favorable Conditions for Mortgage Rates

Monday, March 23rd, 2015

logo shape onlyA stronger than expected Employment report on March 6 pushed mortgage rates up to the highest level of 2015. Since then, however, nearly all of the news, both globally and in the US, has been favorable for mortgage rates. In Europe, the European Central Bank (ECB) began its sovereign bond purchase program on March 9. The added demand from the ECB has helped push bond yields lower around the world. In addition, Greek and eurozone officials have made little progress in agreeing to terms for the Greek aid package. This caused investors to shift to safer assets, including US mortgage-backed securities.

In the US, the major economic data released since the Employment report has been weaker than expected. Retail Sales, Industrial Production, and Housing Starts all have fallen well short of the consensus. Since slower growth reduces expectations for future inflation, this economic data has been good for mortgage rates. Finally, the largest improvement in mortgage rates took place on Wednesday after the release of the Fed statement. Fed officials downgraded their outlook for the economy and inflation, causing investors to push back their expectations for the timing of federal funds rate hikes.



Special Update: ECB

Wednesday, January 21st, 2015

logo shape onlyThe Wall Street Journal reported that during tomorrow’s European Central Bank (ECB) meeting the executive board of the ECB will recommend to the entire 25-member governing council a plan to begin a sovereign bond purchase program. The plan, which would be similar to the quantitative easing (QE) program used by the US Fed in recent years, would call for purchases of 50 billion euros (about $58 billion) per month for a minimum of one year. These figures are roughly in line with investor expectations, and the reaction in MBS markets has been small so far. If the governing council adopts this plan tomorrow, the impact on MBS may be small.



Special Update: Fed Meeting

Wednesday, December 17th, 2014

logo shape onlyThe FOMC statement and Fed Chair Yellen’s press conference has created some volatility, but resulted in just a small net reduction in MBS prices. The statement included some change in language but Yellen pointed out that it did not “signify any change” in the Fed’s “intentions” for monetary policy as indicated in prior statements. The phrase “considerable period” remained in the statement, and the term “patient” was added to describe the Fed’s attitude in changing monetary policy. The forecasts from Fed officials for the pace of future fed funds rate hikes were lowered a little from their forecasts at the September meeting. Yellen said that the Fed is unlikely to start raising the fed funds rate for “at least the next couple of meetings”.

The Fed’s view is that the economy is improving and that the slack in the labor market is diminishing. According to the Fed, the downward pressure on inflation from lower oil prices is “transitory” and will have little impact on long-run inflation levels. Yellen emphasized that future monetary policy will remain heavily dependent on incoming economic data.



Special Update: ECB Asset Purchases

Friday, December 5th, 2014

logo shape onlyOne reason that mortgage rates are so low is the expectation that the ECB will begin to buy sovereign bonds, similar to the recently completed US quantitative easing (QE) program. Economic growth in Europe has stalled, and QE is one of the most powerful tools available to the ECB to help boost growth. The expected added demand for bonds from the ECB has caused bond yields around the world to decline. However, ECB officials are divided about QE, and the decision keeps getting pushed farther into the future. Notably, the Germans are opposed. At Thursday’s press conference, ECB President Draghi appeared to take another small step in favor of QE. Draghi said that the ECB intends to increase the size of its balance sheet and that it would do so even without unanimous consent. However, he also deflated hopes for quick action by saying that the ECB would not consider QE until the end of the first quarter of 2015. The net impact of his comments was a small improvement in mortgage rates.



Special Update: Future Fed Policy

Wednesday, July 16th, 2014

logo shape only

The recently released Fed Minutes and testimony from Fed Chair Yellen have provided more detail in some areas about future Fed policy. There are two primary tools that the Fed is currently using, bond purchases and the fed funds rate. 

Bond purchases from the Fed, which include both Treasuries and mortgage-backed securities (MBS), exert a direct influence on mortgage rates. The added demand for MBS from the Fed raises MBS prices. Since mortgage rates are set based on MBS prices, this helps keep mortgage rates low. The Fed’s portfolio of MBS has been growing at a scheduled pace as the Fed has been reinvesting principal payments received and adding new MBS. The Fed has been tapering its bond purchases, though, and the Minutes indicated that the purchases of new MBS will end in October as expected. After that time, the Fed plans to continue to reinvest principal payments received, which will hold the size of its portfolio steady, at least until the first fed funds rate hike. Principal payments have been averaging $16 billion per month, so investors were pleased that the reinvestment will continue for quite a while.


The fed funds rate, a very short-term interest rate, has a less direct effect on long-term mortgage rates than MBS purchases, but lower short-term rates generally help hold down longer-term rates as well. Fed Chair Yellen has provided no specific guidance about the timing of the first fed funds rate hike. She has emphasized that future policy decisions will be dependent on the performance of the economy. She expects that the economy will expand at a “moderate” pace for the next several years. Fed officials are particularly concerned with the strength of the labor market. The consensus is that the first fed funds rate hike will take place during the middle of 2015.




Special Update: PPE Inflation

Wednesday, May 14th, 2014

logo shape only

At the beginning of the year, a change was made to allow the Producer Price Index (PPI) to capture a wider range of items. PPI now focuses on the increase in prices of intermediate goods AND services used by companies to produce finished products. Services were not included before this year. One result of the change was to make the data more volatile month to month. Investors likely will look at longer-term trends in PPI, but they may not react much to monthly changes, as was seen today. To determine trends in inflation, investors rely more heavily on the Consumer Price Index (CPI), which measures price changes for finished goods, and the Core PCE price index, which is favored by the Fed.




Special Update: Watt Speech

Tuesday, May 13th, 2014

logo shape onlyIn a long awaited speech this morning, new FHFA Director Mel Watt laid out several changes in the direction for Fannie Mae and Freddie Mac from that proposed by former Acting Director Edward DeMarco.  The most significant of which deals with loan limits.  Watt will not force the Agencies to reduce their current loans limits, as DeMarco had planned.  In addition, Watt proposed a renewed focus on expanding credit availability, loosening rules requiring loan buy-backs, and said he will seek public input before any increase in guaranty fees.