Wednesday, July 10, 2013

The Great Bond Massacre of 2013, Part 2

Last week, I wrote about “The Great Bond Massacre of 2013,” and Friday's better-than-expected non-farm payrolls report from the Bureau of Labor Statistics reinforced widespread expectations that the Federal Reserve would announce the first phase of a cutback to its bond-buying program at the conclusion of the September FOMC monetary policy meeting.
This would suggest that The Great Bond Massacre ain't over yet, as interest rates continue to tick higher.
The effects of this action are already being felt, as on July 3, the Mortgage Bankers Association reported that for the week ending on June 28, mortgage applications decreased by 11.7% from one week earlier on a seasonally adjusted basis. On an unadjusted basis, the association's Market Composite Index, a measure of mortgage-loan-application volume, decreased by 12% from the prior week.
The association's Refinance Index fell 16% from the previous week, to its lowest level since July of 2011. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of $417,500 or less increased to 4.58%, the highest rate since July 2011, from 4.46%, with points increasing to 0.43 from 0.35 (including the origination fee) for 80% loan-to-value ratio (LTV) loans. The report included this commentary from Mike Fratantoni, the association's Vice President of Research and Economics: 

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