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July 15, 1988
Mortgage rates are unchanged from last week, despite nervousness over Chairman Greenspan's Congressional testimony, and significant economic data releases.
The bond market is improving this morning on news that the May trade deficit was "only" $10.93 billion, a couple of billion less than expected, June Industrial Production rose a small .4%, May Business Inventories rose .6% (indicating no shortage of supply), and the Producer Price Index (wholesale prices) rose .4%, which was a lot less than feared. Earlier in the week, Retail sales were reported to have risen .5%, Consumer Credit rose a downright weak $2.4 billion, and housing completions fell 10.8% in May.
Greenspan did the usual Fed Chairman's blue smoke and mirrors routine, swearing absolute determination to prevent inflation, and equally sincere dedication to economic growth. A fine reading of his testimony shows a belief that the economy is growing steadily, that the declines in unemployment are likely to reverse themselves, that inflation will stay down, and most important, refers to Fed tightening in the Spring in the past tense.
We can take Greenspan at his word: the Fed is unlikely to tighten any time soon, though it is more likely to tighten than to ease. It will take some really scary data to make the Fed move much for the rest of the summer.
This is a pleasant situation for those of us in the mortgage and real estate business, because its a whole lot easier to guesstimate short term moements in rates while the Fed is sleepy than while it's wide awake. Your trading guide for the weeks to come is the yield on the 30year Tresury bond: we have been trading in a range in yield of 8.85% to 9.35%, and are not likely to move out of that range. We are at 9.11% this morning, and have been moving up to that level: we are a liitle more likely to move down in yield and mortgage discount next week. If we flow in one direction for a week or so, we are likely to move the other way for a while. These "long bond" yield ranges correspond approximately to FHA 10s at discounts of .5 to 5.0 and 10.5s at 0 to 3.0.
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