Dow jumped 349, advancers over decliners 7-2 & NAZ went up 219. The MLP index added 2+ to the 206s & the REIT index recovered 7+ to the 467s. Junk bond funds crawled higher & Treasuries were being purchased, reducing yields (more below). Oil climbed in the 89s & gold inched up 1 to 1829.
AMJ (Alerian MLP index tracking fund)
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Atlanta Federal Reserve Pres Raphael Bostic said he anticipates hiking interest rates 3 or 4 times this year, but he stressed that the central bank isn't locked into a specific plan. The policymaker signaled a view that is less aggressive than the market's on rates. "In terms of hikes for the interest rates, right now I have three forecast for this year," he added. "I'm leaning a little towards four, but we're going to have to see how the economy responds as we take our first steps through the first part of this year." Market pricing is anticipating at least 5 & possibly 6 hikes of 0.25 percentage points each. In a recent interview, Bostic garnered some attention when he said the first move might have to be 0.5 percentage points (50 basis points). The Fed has signaled that it likely will enact its first rate hike in more than 3 years at its Mar meeting. Bostic did not commit to moving that quickly. "For me, I'm thinking very much of a 25-basis-point perspective," he said. "But I want everyone to understand that every option is on the table, and I don't want people to have the view that we're locked into a particular trajectory in terms of how our rates have to move over time. We're really going to let the data show us to what extent a 50 basis point or 25 basis point move is appropriate."
Fed's Bostic says more than 3 hikes possible this year
Mortgage rates have been rising since the start of the year, but buyers at first seemed unfazed, some even rushing to get in before rates moved higher. Now buyers are pulling back. Mortgage applications to purchase a home dropped 10% last week compared with the previous week, seasonally adjusted & were 12% lower year over year, according to the Mortgage Bankers Association. The average loan size hit another record high at $446K, indicating that most of the buying activity is on the higher end of the market, where there is comparatively more supply. And supply is a key factor in mortgage demand. The total inventory of homes for sale was down 28% nationally in Jan from Jan of last year, according to Realtor.com. New listings were also down 9%, the 2nd straight month of declines. That is likely playing into Feb as well, since sellers are not exactly rushing into the market. “We’re forecasting a whirlwind year ahead for buyers, and, if January housing trends are any indication, 2022 competition is already heating up. Homes sold at a record-fast January pace, suggesting that buyers are more active than usual for this time of year,” said Danielle Hale, Realtor.com's chief economist. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647K or less) increased to 3.83% from 3.78%, with points decreasing to 0.40 from 0.41 (including the origination fee) for loans with a 20% down payment. The rate was 87 basis points lower one year ago. “Mortgage rates followed the U.S. 10-year yield and other sovereign bonds as the Federal Reserve and other key global central banks responded to growing inflationary pressures and signaled that they will start to remove accommodative policies,” said Joel Kan, MBA's associate VP of economic & industry forecasting. As a result, applications to refinance a home loan fell 7% for the week & were 52% lower than the same week one year ago. The refinance share of mortgage activity decreased to 56.2% of total applications from 57.3% the previous week. There is a shrinking population of borrowers who can benefit from a refinance now, about ½ as many as there were one year ago.
Homebuyer demand for mortgages drops 10%, as higher interest rates price some people out
Treasury yields retreated, but the 10-year rate held above 1.92%, ahead of the release of inflation data on tomorrow. The yield on the benchmark 10-year Treasury note fell 3 basis points to 1.927% & the yield on the 30-year Treasury bond moved more than 2 basis points lower to 2.225%. Yields move inversely to prices & 1 basis point is equal to 0.01%. The 10-year rate hit 1.97% yesterday in the run-up to the release of the Jan consumer price index tomorrow. A higher inflation reading would add to expectations that the Federal Reserve will move on tightening monetary policy. The forecast expects the CPI to show that prices rose 0.4% in Jan, for a 7.2% increase on the previous year, which would be the highest in almost 40 years.
Treasury yields retreat, but 10-year rate holds above 1.9%
Dow Jones Industrials
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