QE increased the size of the Fed’s balance sheet almost eightfold since the turn of the century. Currently, the Fed’s balance sheet holds around $4.5 trillion.
In the FOMC’s June meeting, members reviewed the financial situation. Members discussed the state of the credit markets and the interbank market.
The FOMC minutes noted that inflation has remained well below the Fed’s 2% target. Consumer prices rose by 1% over the past year.
The big takeaway from the Fed’s economic analysis is that two downside risks—the Brexit vote and the weak May payroll numbers—turned out to be non-events.
Some Fed members argued that while unemployment is low, the overall labor utilization rate is low. The Fed has more work to do to achieve full employment.
On August 17, 2016, the Fed released the minutes from the July FOMC meeting. Overall, bonds took the FOMC minutes to be relatively dovish.
The ten-year bond yield fell by 8 basis points to 1.51% for the week ending August 12, 2016. Ginnie Mae TBAs rose by 4 ticks and closed at 104 28/32.
For the week ending August 12, 2016, Fannie Mae TBAs ended at 103 24/32—up 4 ticks for the week. The ten-year bond yield fell by 8 basis points to 1.51%.
Lately, mortgage rates and bond yields have shown a weak correlation. Treasury yields have fallen over the past month, while mortgage rates have been steady.
After closing the previous week at 1.59%, bond yields—as tracked by the iShares 20+ Year Treasury Bond ETF (TLT)—fell by 8 basis points to 1.51% last week.
Last week didn’t have much data—typical for the week after the jobs report. There was a negative productivity reading for the third quarter in a row.
The FOMC minutes are potentially the biggest market-moving event. How close is the Fed to hiking the interest rate at the September meeting?
There are two basic types of state foreclosure laws—judicial and non-judicial. In non-judicial states, foreclosures are handled through a streamlined process.
New capital requirements for MSRs (mortgage servicing rights) are depressing valuations. Banks are reluctant to hold too much servicing.
Employment costs rose 0.6% in the quarter ending June 30, 2016. Over the past 12 months, compensation costs for civilian workers have risen 2.3%.
In July 2016, the labor force participation rate rose to 62.8%—up 10 basis points from June. The labor force rose from 158.9 million to 159.3 million.
In July 2016, the unemployment rate was steady at 4.9%, or about 7.8 million people. The civilian labor force increased by 407,000 people.
The ten-year bond yield rose by 14 basis points to 1.6% for the week ending August 5, 2016. Ginnie Mae TBAs fell by 6 ticks and closed at 104 24/32.
For the week ending August 5, Fannie Mae TBAs ended at 103 20/32—down 16 ticks for the week. The ten-year bond yield rose by 14 basis points to 1.6%.
Lately, mortgage rates and bond yields have shown a weak correlation. Treasury yields have fallen in the past month, while mortgage rates have been steady.