St Casimirs Mortgage Minute

Is The American Health Care Act Pushing Down Mortgage Rates?

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Published Date 3/22/2017

The day started where yesterday left off, interest rates working lower and MBS prices up. Stock indexes in pre-opening trade were generally unchanged prior to actual open. What is happening in the bond market, and why have the stock indexes lost most of their earlier momentum? We warned about it since the beginning of the Trump euphoria, the Trump policies are progressing very slowly. The healthcare reform, tax cuts and increases in fiscal spending that investors lapped up as done deals are now in question. Not that they may not happen, but all of those lofty goals will not happen as rapidly as equity markets and the bond markets had expected.
Tomorrow the House is set to vote on the healthcare bill, now dubbed as RyanCare; the prognosis isn’t good that it will pass with a number of Republican conservatives already at odds with the bill. Then even if it does pass, the Senate will not go along with it as it is presently structured. That leads to months of debate and politicking and in turn will delay any tax cuts and fiscal spending. Reality has set in that even though the political landscape has undergone a major shift, politics. The result, money leaving equities and searching for a momentary respite. Not news here; we have warned stocks are overbought and some pull back is likely. I doubt the strong bullish undertone will change but at current levels and the reality that the benefits promised won’t occur soon…. maybe not even this year.
At 9:00 am FHFA reported that Jan home prices were unchanged from Dec; forecasts were for an increase of 0.5%. Yr/yr prices 5.7% down from +6.2% in Dec.
Feb existing home sales just released at 10:00 AM EST; estimates were for a decline of 2.5% to 5.55 mil from 5.69 mil in Jan. As reported, sales were down 3.7% to 5.48 mil units yr/yr sales +5.4%; inventories dropped another 6.4%, median sales price $228.900 (yr/yr +7.4%).
The vote on health care tomorrow that looks iffy has pushed yields lower as investors are taking out insurance policies against the possibility stocks will succumb to additional sales pressures. The target we have now for the bellwether 10 yr note is 2.32% (2.40% now). Yesterday’s decline in stocks and declines in interest rates is not yet a trend, so far just a down day yesterday. Our models and other technical indicators have turned bullish now but still the wider outlook remains for higher interest rates with the Fed talking at least two more increases this year. Of course, that will not occur if the economic outlook changes or stocks collapse.
 

Source: TBWS