Market Update provided by Rheim Penman

Mortgages closed mostly tighter to treasuries but wider to swaps on Thursday.  The FN30 3.5% was flat to the treasury curve and 1 & 1/8 ticks wider to the swap curve.  Overall mortgage trading activity was a little lighter on Thursday with the street reporting total fixed originations of $2.366B, compared to the 5 day average of $2.527B.  Month to date originations totaled $43.032B.  Roll levels have been coming off this week with the FN30 3.0%, 3.5% and the 4.0% rolls all down -¼ of a tick since Monday.

There are no scheduled Fed purchases today.

Yesterday the Fed released the results of their stress tests, and for the third straight year, all large banks passed.  The tests are designed to measure whether the 34 largest banks will be able to maintain a minimum 3% capital level, even in periods of severe economic downturns.  Next Wednesday the Fed will announce the results of their qualitative review, which determines whether the banks will be able to move forward with their capital plans and pay dividends to their shareholders.  The results of the tests may also help bolster Republican backed plans to ease up on financial regulation.

In economic news, the Federal Reserve Bank of Kansas Cities manufacturing index increased from 8 to 11 amid indications of stronger manufacturing growth and hiring.

The FHFA’s monthly Home Price Index provided further evidence of continuing increases in home prices amid a lack of inventory, with an increase of 0.7% for the month of April. The year over year increase was 6.8%.  Regionally, the Mountain (+8.9%), South Atlantic (+8.0%), and Pacific (+7.5%) districts continued to show the most significant increases.

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