|
April 7, 1989
Market reaction to Friday's employment data indicates medium trouble for rates next week. Bond buyers got excited by NonFarm Payroll growth at a weak 180,000 in March, but then noticed Unemployment down to 5.0%, the lowest since Nixon's departure, and crashed the market back down.
Wise clients will lock in advance of the Producer Prices release next Friday morning.
The following economic numbers are weak, but not yet recessionweak: car sales plunged 18.3% in March, February Consumer Credit was the smallest increase in four months, Construction Spending was unchanged, and new Construction Contracts dropped 7%.
Good morning, 1year TBill borrowers of 1987: your new monthly payment beginning in April will have a 12.46% interest rate (TBill at 9.71% plus 2.75% margin). Wasn't your teaser rate nice?
Meanwhile, COF loans will only index to 10.63% (COF at 8.125% plus maybe 2.50%). But watch out there is flim flam nearby.
The Bill index is a four week moving average of weekly auctions (add the last four, divide by four), hence the jagged, fastmoving line on the ARM comparison chart.
The smartest guy I know on the COF subject (Jim Hass of KesslerEhrlich Capital Markets in Lakewood) has just sent sales literature to investors who buy COFsecuritized mortgages reminding them that the COF will continue to rise long after other rates have started to fall.
There are bluehaired grandmothers headed for S&Ls everywhere to roll over last year's 7.25% CD into a new 10.00% CD. Investors aren't dumb: they are buying two year CDs at even higher rates, not just six month ones. The COF index behaves like a twenty month moving average, slow to rise, and even slower to fall.
Even if we have our recession, and Treasury rates fall like a stone in 1990, the COF won't peak at 9.75% or so (pay rate: 12.25%) until early 1991. Assuming, of course, that the Fed doesn't raise short term rates more in the meantime.
Soon we will hear the rustling of copies of old closing documents as borrowers try to figure out just where that lifeofloan cap was after all. They may be wearing their COF beanie for a year or two or three.
|
