This morning’s data provided quite the mine field for bonds. Initially the Labor Department reported producer prices rose 1.40%, significantly higher than the expectation of 0.8%, with the core rate up 0.3%. Energy prices rose 5.1% in January and other raw materials rose 9.6%. In addition to the worse than expected news on inflation, we saw improvement in the Leading Economic Indicators index and improvement in the Philadelphia Fed manufacturing index. While this data is positive for economic growth, the bond market viewed it as inflationary, particularly when combining it with the PPI report.

The last mine laid this morning was a release from the U.S. Treasury announcing the size of next week’s debt auctions. Our government will be obligating us to repay another $118 billion of debt, with $44 billion of two year notes, $42 billion of five year notes, and $32 billion of seven year notes. Needless to day the bond market is falling sharply after this announcement.
Also, Walmart was out with earnings and forecasts. The numbers looked light as they say. And I use Wally as a sign post of where the consumer is. And with Sam’s Club, as a proxy for small business. If you want more color on how I use Walmart and Sam’s as an economic indicator, let me know and I will explain.
So where does the road lead? To higher mortgage rates for North Carolina mortgages and South Carolina mortgaes. Why? The economy is moving just enough forward to keep rates moving upward. We are dumping Treasuries on the market in huge numbers. And Big Ben is stopping MBS purchases and increasing their sales.

Next post will be about the muni market and how that will effect mortgage rates in my opinion.

Well, Big Ben was at it again today. Although it was a canned speech. He oh course stated the obvious in that they are looking for a way out. Looks like reverse repos will be the tool of choice. But the real concern for NC and SC mortgage borrowers is what will happen when the Fed stops the MBS purchase program. Rates already want to go higher as today’s 10 year Treasury auction had tepid demand. Let’s see what tomorrow’s MBS report says about the Fed’s appeitite for more mortgages.

For those in NC and SC who flip houses and foreclosures, the FHA temporary rule change is what you have been waiting for.  Investors can now buy and sell homes in 90 days.  There are restrictions like no more than a 20% profit, but this helps get some of the foreclosures off the market.  But now FHA buyers are welcome and this is a great thing.