Market Update
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4/28/2008
All eyes will be on the Fed this week. They meet Tuesday and Wednesday, with a decision about interest rates due Wednesday afternoon at 2:15pm EST. Continuing the dramatic reversal of the past two weeks, odds for a 0.25% rate cut fell below 100%. There is a small chance that the Fed will not cut rates at all. As of Friday’s close, the markets predicted a rate cut with only 76% certainty. The string of futures contracts stretching in to the horizon shows Fed funds bottoming at 2.00% this summer, followed by a slow climb that reaches 3.00% in the summer of 2009.
AN INSIDER\'S VIEW FROM THE CAPITAL MARKETS COOPERATIVE TRADING DESK:
“Lehman Brothers contends – and we tend to agree – that it is a little too early to sound the ‘all clear’ bell. Evidence the spread between LIBOR and Treasury yields, which has long been an excellent measure of the health of the global financial system. That spread has widened sharply in the past several weeks. LIBOR has risen relative to Treasuries, reflecting worry about future calamities. While we may have reached the point of maximum bearishness a month ago (Bear collapses, mortgage rates 3.50% above treasuries, etc.), the economy will likely have some rough sledding ahead.
The spread between mortgage and Treasury yields moved lower again, reflecting thoughts of a lower volatility environment ahead. That spread closed at 2.36%, down 0.20% on the week. Unfortunately, Treasury yields moved higher, and left mortgage rates slightly higher on the week. Investors sold Treasuries and moved back in to riskier securities like mortgage, corporate, and municipal debt.
Fannie Mae has been doing its part in the high-balance conforming market. They have been holding spreads constant, adding stability and confidence to a market in disarray. Private-label jumbo fixed rates, meanwhile, remain at record-high levels relative to conforming rates. The jumbo ARM market continues to be led by bank portfolio rates, which are very low for the right borrowers in the right locations.” (CMC traders price, hedge, and sell $billions of mortgages for their clients, and offer a front-line perspective on the markets.)
After the
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About Capital Markets Cooperative
Capital Markets Cooperative (CMC) provides mortgage bankers with the economies of scale and the expertise to reduce risk and maximize profit in the secondary market. Regarded as the premier secondary marketing specialist in the industry, CMC has worked with financial institutions nationwide to break traditional barriers in capital markets and take performance and profits to the next level. To date, CMC executives have managed more than $500 billion of mortgage volume. CMC board members are
| Market | Close | Wk Chg |
| 30-Yr Mortgage | 5.94% | +0.07% |
| 10-Yr Treasury | 3.86% | +0.15% |
| 2-Yr Treasury | 2.38% | +0.25% |
| Fed Funds | 2.25% | -0.00% |
| Fed (Apr ‘08) | 2.06% | +0.05% |
| Fed (Dec ’08) | 2.25% | +0.16% |
| Dow Industrials | 12,891 | +42 |
Tom Millon is one of the top secondary marketing executives in the U.S. mortgage business, having managed hundreds of billions of dollars of mortgage volume during the past fifteen years. Mr. Millon is recognized as a preeminent expert in the management of pipeline and servicing risks. He has extensive relationships throughout the industry, and is a frequent author and speaker in the field.
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