January 7, 2010
NREI
Private equity fundraising sank to a five-year low in 2009, having its worst year since 2004, with only $246 billion raised by 482 funds worldwide
According to a new study by researcher Preqin, that level of activity is down 61% from the $636 billion raised in 2008, and a drop of 62% from the record $646 billion raised in 2007.
The fourth quarter of 2009 was the slowest period for the year, with only $35 billion raised by 75 funds – the lowest quarterly total since Q3 2003.
“Fundraising conditions have been extremely challenging in 2009, with a significant number of investors holding back from making new investments,” says Tim Friedman, head of communications at Preqin. He notes that the latest survey, conducted in December 2009 and including more than 100 leading LPs, found that that only 60% of investors have made new commitments in 2009, with many of these institutions investing in far fewer funds than in previous years.
Here are a few of the study’s highlights:
• Of the $246 billion raised in 2009, buyout funds raised the most capital, with $102 billion raised by 84 funds. 170 venture funds raised $27 billion, while 96 real estate funds raised $41 billion.
• In Q4 2009, 13 buyout funds closed with an aggregate $14 billion, 24 venture funds closed with $4 billion, and 17 real estate funds closed with $7 billion.
• Funds focusing primarily on North America raised the most in commitments over 2009, with 228 funds raising an aggregate $145 billion. 136 funds focusing primarily on Europe raised $74 billion, while 118 Asia and Rest of World funds raised $27 billion. In Q4 2009, North American funds raised $19 billion, European funds $11 billion, and Asia and Rest of World funds $5 billion.
• The largest fund to close during 2009 was CVC European Equity Partners V, which closed early in the year with €10.75bn in commitments. The vehicle invests in mid-market companies in Europe.
• The largest fund to close in Q4 2009 was Clayton Dubilier & Rice VIII, a buyout fund targeting companies in North America and Europe. It closed at the very end of 2009 with total commitments of $5 billion.
• The average length of time taken for a fund to reach a final close has increased dramatically over the last two years, and now stands at more than 18 months for funds closed in 2009, up from one year for funds closed in 2007.
• Over the course of 2009, 60% of private equity investors surveyed made at least one new commitment to a private equity fund, while 40% of investors did not make any new commitments.
• Just over half of investors plan to make their next commitment to a private equity fund in the first half of 2010, and 16% plan to wait until the second half of the year.
“Although the recovery in the public markets and adjustment in private equity fund valuations has alleviated the denominator effect that many investors were suffering from at the start of 2009, we are finding that many backers of private equity funds have fundamentally altered their attitudes towards the asset class,” says Friedman.
“We are seeing investors focusing more on understanding the state of their existing portfolios and spending considerably more time when considering new vehicles. Negotiating terms and conditions has become more of a key concern, and we are seeing a trend away from the bigger mega-buyout funds towards more of a focus on smaller mid-market and regionally focused vehicles.”
“Although investors are in a much clearer position now than at the start of 2009, the chances of a return to the fundraising levels seen in 2007 and 2008 are very slim. As a result of the lack of distributions that they have received from existing investments, investors have less capital available to commit to new funds, and although the majority of investors will be active in 2010, it will be at a lesser rate than in recent years. It will not be until we see the market for exits recover significantly that we will see annual private equity fundraising attaining $500bn-plus levels once again.”
Friday, January 8, 2010
CMBS Delinquencies Rise to All-Time High in December, But Bond Spreads Narrow
January 8, 2010
National Real Estate Investor
Call it the winter of discontent for the troubled U.S. commercial mortgage-backed securities (CMBS) market. The loan delinquency rate climbed 42 basis points in December to reach 6.07%, making history in the process.
The percentage of loans 30 days or more past due climbed above 6% in December for the first time ever, according to commercial real estate data and analytics firm Trepp LLC.
“It is a scary threshold to have breached,” says Manus Clancy, senior managing director at New York-based Trepp, which tracks some 60,000 CMBS loans totaling $725 billion. “We continue to add 35 to 45 basis points of additional delinquencies per month, so that [trend] really doesn’t seem to be subsiding at all.”
Clancy says that he wouldn’t be surprised if the delinquency rate were to steadily rise to near 8% by mid-2010, but he is quick to point out that Trepp generally doesn’t forecast this type of information.
The hospitality sector continues to be the most troubled performer, although it showed a slight improvement over the prior month. The delinquency rate on CMBS hotel loans registered 13.87% in December compared with 14.07% in November.
The Chapter 11 bankruptcy filing by Extended Stay America in June 2009 accounts for approximately 3.5% of the high delinquency rate among CMBS hotel loans, according to Clancy.
“But you see weakness throughout the hotel sector. It doesn’t matter whether it’s high-end or economy. Everybody is showing lower RevPAR (revenue per available room) and lower occupancies. It’s just not a great story.”
By property type, the multifamily sector posted the second highest delinquency rate in December (9.27%), followed by retail (5.50%), industrial (3.98%), and office (3.42%).
One striking data point is that loan delinquencies for retail rose 72 basis points in December, the largest monthly increase among any major property type.
But the trends in the industrial and multifamily arena were nearly as unsettling with delinquencies rising 65 and 49 basis points, respectively.
While the office sector posted the lowest delinquency rate of any major property type, delinquencies were still up 28 basis points in December.
Possible green shoots
One positive sign is that office rents in some major metros appear to be bottoming out, points out Clancy. “They are not falling as much anymore. That said, they’ve taken some really big hits.”
But there is an even bigger green shoot emerging. While much ink has been devoted to the wave of maturing CMBS loans that many borrowers could find difficult to refinance, three deals completed in the fourth quarter of 2009 are cause for optimism.
In the first commercial mortgage deal sold under the federal government’s Term Asset-Backed Securities Loan Facility (TALF) program, Developers Diversified Realty successfully completed a $400 million bond offering in November.
The risk premium paid to CMBS investors on the triple-A rated class was 140 basis points over swaps. The relatively tight spread served as evidence that investors were willing to jump back into the game on a highly selective basis.
Spreads industry-wide on the super-senior CMBS tranche — the top-rated debt in a bond structure — have narrowed considerably over the past year, according to Trepp.
Spreads on the super senior portion of 10-year CMBS issued from 2005 through 2007 narrowed from 1,200 basis points over Treasuries in February 2009 to below 493 basis points in December 2009.
That was a big victory for the CMBS market, emphasizes Clancy, but uncertainty lingers. “It’s unclear at this point what kind of floor is being placed on those spreads by the TALF program, by the Public-Private Investment Program (PPIP) and so forth,” says Clancy.
“Where would [the spreads] be without the government initiatives? While it’s a bright sign and is evidence that the government programs have had an impact, it’s hard to say where these deals would trade without the underlying support.”
The other two CMBS refinancing deals completed in the fourth quarter of 2009 were not tied to TALF. In mid-December, Coral Gables-based Flagler closed on a $460 million CMBS loan covering its 44 office and industrial properties in Florida.
Banc of America Securities helped Flagler securitize the loan, which was the first non-government supported CMBS issued in 18 months.
Also in December, JP Morgan Chase & Co. sold $500 million of CMBS backed by the Inland Western Real Estate Trust. The deal was reportedly oversubscribed.
According to Reuters, the two top-rated classes in the Inland Western deal sold at yield premiums of 150 basis points to 205 basis points above an interest-rate benchmark, or about one-third of the spread on existing CMBS made at the height of the real estate boom.
While no one is certain how much issuance the U.S. CMBS marketplace will generate in 2010, Clancy is hopeful. “I think it would be great if we got up to $1 billion per month again over the next six months. We started to see these three deals in the late part of 2009. I thought it was a great sign.”
National Real Estate Investor
Call it the winter of discontent for the troubled U.S. commercial mortgage-backed securities (CMBS) market. The loan delinquency rate climbed 42 basis points in December to reach 6.07%, making history in the process.
The percentage of loans 30 days or more past due climbed above 6% in December for the first time ever, according to commercial real estate data and analytics firm Trepp LLC.
“It is a scary threshold to have breached,” says Manus Clancy, senior managing director at New York-based Trepp, which tracks some 60,000 CMBS loans totaling $725 billion. “We continue to add 35 to 45 basis points of additional delinquencies per month, so that [trend] really doesn’t seem to be subsiding at all.”
Clancy says that he wouldn’t be surprised if the delinquency rate were to steadily rise to near 8% by mid-2010, but he is quick to point out that Trepp generally doesn’t forecast this type of information.
The hospitality sector continues to be the most troubled performer, although it showed a slight improvement over the prior month. The delinquency rate on CMBS hotel loans registered 13.87% in December compared with 14.07% in November.
The Chapter 11 bankruptcy filing by Extended Stay America in June 2009 accounts for approximately 3.5% of the high delinquency rate among CMBS hotel loans, according to Clancy.
“But you see weakness throughout the hotel sector. It doesn’t matter whether it’s high-end or economy. Everybody is showing lower RevPAR (revenue per available room) and lower occupancies. It’s just not a great story.”
By property type, the multifamily sector posted the second highest delinquency rate in December (9.27%), followed by retail (5.50%), industrial (3.98%), and office (3.42%).
One striking data point is that loan delinquencies for retail rose 72 basis points in December, the largest monthly increase among any major property type.
But the trends in the industrial and multifamily arena were nearly as unsettling with delinquencies rising 65 and 49 basis points, respectively.
While the office sector posted the lowest delinquency rate of any major property type, delinquencies were still up 28 basis points in December.
Possible green shoots
One positive sign is that office rents in some major metros appear to be bottoming out, points out Clancy. “They are not falling as much anymore. That said, they’ve taken some really big hits.”
But there is an even bigger green shoot emerging. While much ink has been devoted to the wave of maturing CMBS loans that many borrowers could find difficult to refinance, three deals completed in the fourth quarter of 2009 are cause for optimism.
In the first commercial mortgage deal sold under the federal government’s Term Asset-Backed Securities Loan Facility (TALF) program, Developers Diversified Realty successfully completed a $400 million bond offering in November.
The risk premium paid to CMBS investors on the triple-A rated class was 140 basis points over swaps. The relatively tight spread served as evidence that investors were willing to jump back into the game on a highly selective basis.
Spreads industry-wide on the super-senior CMBS tranche — the top-rated debt in a bond structure — have narrowed considerably over the past year, according to Trepp.
Spreads on the super senior portion of 10-year CMBS issued from 2005 through 2007 narrowed from 1,200 basis points over Treasuries in February 2009 to below 493 basis points in December 2009.
That was a big victory for the CMBS market, emphasizes Clancy, but uncertainty lingers. “It’s unclear at this point what kind of floor is being placed on those spreads by the TALF program, by the Public-Private Investment Program (PPIP) and so forth,” says Clancy.
“Where would [the spreads] be without the government initiatives? While it’s a bright sign and is evidence that the government programs have had an impact, it’s hard to say where these deals would trade without the underlying support.”
The other two CMBS refinancing deals completed in the fourth quarter of 2009 were not tied to TALF. In mid-December, Coral Gables-based Flagler closed on a $460 million CMBS loan covering its 44 office and industrial properties in Florida.
Banc of America Securities helped Flagler securitize the loan, which was the first non-government supported CMBS issued in 18 months.
Also in December, JP Morgan Chase & Co. sold $500 million of CMBS backed by the Inland Western Real Estate Trust. The deal was reportedly oversubscribed.
According to Reuters, the two top-rated classes in the Inland Western deal sold at yield premiums of 150 basis points to 205 basis points above an interest-rate benchmark, or about one-third of the spread on existing CMBS made at the height of the real estate boom.
While no one is certain how much issuance the U.S. CMBS marketplace will generate in 2010, Clancy is hopeful. “I think it would be great if we got up to $1 billion per month again over the next six months. We started to see these three deals in the late part of 2009. I thought it was a great sign.”
Sunday, January 3, 2010
Mortgage Bond Rally May End, Rates Rise as Fed Stops Purchases
Dec. 31 (Bloomberg) -- Mortgage bonds are poised to slump after a record rally as the Federal Reserve’s unprecedented buying of $1.25 trillion of the securities ends as soon as March, driving up interest rates on new home loans.
Analysts at BNP Paribas SA, Credit Suisse Group AG and JPMorgan Chase & Co. say the extra yield over benchmark rates that investors demand to hold the securities will widen as much as half a percentage point as the Fed stops purchasing. The 11- month-old program has reduced yields, which guide lending rates, by about 1 percentage point, BNP estimates.
The Fed has been buying at “way” narrower spreads than “where the private sector would be willing to” invest, said Doug Dachille, chief executive officer of New York-based First Principles Capital Management LLC, which oversees about $8 billion of fixed-income investments.
Rising yields mean loan rates are likely to end 2010 almost 0.75 percentage point higher than they are currently, based on forecasts for government bonds and spreads, adding to challenges for a housing market struggling to recover from its worst slump since the 1930s. Fed Chairman Ben S. Bernanke’s goal this year has been to lower the costs for consumers to borrow and help bolster the economy as banks curbed lending.
Excess Returns
So-called agency mortgage bonds guaranteed by companies such as Fannie Mae and Freddie Mac returned 4.8 percentage points more than Treasuries this year, their best performance in at least 20 years, according to Barclays Capital index data. Last year, the debt returned 2.15 percentage points less than government notes.
The Fed began purchases in the $5.4 trillion market of securities guaranteed by government-supported Fannie Mae and Freddie Mac or federal agency Ginnie Mae in January, acquiring a net $1.1 trillion so far.
Yields on Washington-based Fannie Mae’s current-coupon 30- year fixed-rate mortgage bonds were 4.53 percent yesterday, below the average of 5.59 percent in the five years through 2008, according to data compiled by Bloomberg.
The bonds yield 0.74 percentage point more than 10-year Treasuries, compared with the average of 1.27 percentage point over the past five years, and as high as 2.38 percentage points in March 2008. The spread was 0.68 percentage point on Nov. 24, the narrowest since 1992.
Bank Demand
Banks will probably buy more of the securities as that gap widens, limiting increases, according to John Anzalone, head of research and trading for mortgage bonds at the institutional unit of Atlanta-based asset manager Invesco Ltd.
“Banks are buying Treasuries right now, so you’ve got to figure at some point” mortgage bonds will be in demand, said Anzalone, whose firm oversees $414 billion in assets. “The question is just how far” spreads need to widen, he said.
Commercial banks’ holdings of Treasury and agency debt excluding mortgage securities rose $93.9 billion since June 30 to $424.7 billion, while their investments in agency mortgage bonds expanded $16.3 billion to $1 trillion, Fed data show.
Mortgage-bond yields help determine what lenders must charge consumers on home loans to make a profit when selling the debt, which in turn provides cash for new lending. Yields on the agency mortgage bonds are guiding rates on almost all new U.S. home lending following the collapse of the non-agency market in 2007 and a retreat by banks.
Falling Rates
The rally in the bond market has helped pushed the average rate on a typical 30-year fixed mortgage to a record low of 4.71 percent in the week ended Dec. 11, according to McLean, Virginia-based Freddie Mac. While the rate has since risen to 5.05 percent, it’s below the average of 6.05 percent last year and as high as 8.64 percent in May 2000.
Signs that housing may have bottomed are emerging. Sales of existing homes jumped 7.4 percent to a 6.54 million annual rate in November, the highest since February 2007, the National Association of Realtors said Dec. 22 in Washington. The S&P/Case-Shiller index of home prices in 20 U.S. cities rose 0.4 percent in October from September, the fifth consecutive gain.
Obstacles to a recovery include 10 percent unemployment; expiring tax credits for buyers; as many as 10 million looming foreclosures; and a plan to tighten standards at the Federal Housing Administration, the U.S. mortgage-insurance agency involved in about a third of loans for home purchases, according to analysts including Merrill Ross at BGB Securities Inc. Arlington, Virginia, and Laurie Goodman of Amherst Securities Group in New York.
Housing Doubts
The Fed may decide to continue purchasing mortgage bonds if the rebound in the property market proves short-lived, Invesco’s Anzalone said. Bernanke said in Dec. 3 testimony to Congress that officials “will have to see how the economy is evolving and whether or not we need to do more.”
While the S&P/Case-Shiller index shows home values are rising after a record 33 percent drop from 2006, Pacific Investment Management Co. mortgage-bond head Scott Simon said such data is misleading because of a temporary curb on home seizures tied to government anti-foreclosure efforts that will reverse next year.
Newport Beach, California-based Pimco’s Total Return Fund, the world’s biggest bond fund, cut holdings of mortgage securities as the Fed bought, to 12 percent in October, the lowest since at least 2000, from 62 percent on Dec. 31, according to the firm’s Web site. Government debt rose to 63 percent in September, the most in five years, before falling to 51 percent.
Treasury Purchases
The central bank stopped buying Treasuries in the last week of October. Since then, the yield on the benchmark 10-year note has risen to 3.79 percent from 3.50 percent. It will rise to 3.97 percent by the end of next year, according to the median estimate of 60 economists and strategists surveyed by Bloomberg.
It’s unlikely the Fed’s exit will create “dramatically” higher mortgage rates, said William Cunningham, global head of credit strategies and fixed-income research at the investment unit of Boston-based State Street Corp., the world’s largest money manager for institutions.
Cunningham cited tighter mortgage-bond spreads after the Fed’s purchases slowed in October. Issuance fell at the same time as a result of lower refinancing and home buying, meaning the Fed reduction “really hasn’t had the detrimental impact a lot of people were anticipating,” he said.
Supply Outlook
Limited supply is likely to help the market next year too, he said. Issuance of agency mortgage bonds may fall 20 percent in 2010, according to New York-based Citigroup Inc.
“The disruption, relative to the swings we’ve seen over the past year, should remain relatively muted,” said Roger Bayston, a senior vice president in San Mateo, California-based Franklin Templeton Investment’s fixed-income group, which oversees more than $200 billion of bonds. “I don’t think anybody wants to see higher mortgage rates, given the fragility of the housing market and broader economy at this time.”
All parts of the credit market may suffer if Bernanke retreats, after tight spreads on mortgage securities pushed bond buyers into debt such as low-rated company bonds and mortgage securities without government backing, according to JPMorgan.
“We can see the Fed’s footprints indirectly in many other markets as healing has spread,” Matt Jozoff, a New York-based mortgage-bond analyst at JPMorgan, wrote in an outlook report for 2010.
The mortgage-bond market also may face challenges from policies at Fannie Mae and Freddie Mac, even after the Treasury on Dec. 24 gave them more time to shrink their own holdings of the bonds. They are set to begin buying defaulted and modified mortgages from the securities they guarantee at a faster pace, according to Credit Suisse. That may hurt bonds with relatively high coupons, which Pimco’s Simon said are most overvalued.
Analysts at BNP Paribas SA, Credit Suisse Group AG and JPMorgan Chase & Co. say the extra yield over benchmark rates that investors demand to hold the securities will widen as much as half a percentage point as the Fed stops purchasing. The 11- month-old program has reduced yields, which guide lending rates, by about 1 percentage point, BNP estimates.
The Fed has been buying at “way” narrower spreads than “where the private sector would be willing to” invest, said Doug Dachille, chief executive officer of New York-based First Principles Capital Management LLC, which oversees about $8 billion of fixed-income investments.
Rising yields mean loan rates are likely to end 2010 almost 0.75 percentage point higher than they are currently, based on forecasts for government bonds and spreads, adding to challenges for a housing market struggling to recover from its worst slump since the 1930s. Fed Chairman Ben S. Bernanke’s goal this year has been to lower the costs for consumers to borrow and help bolster the economy as banks curbed lending.
Excess Returns
So-called agency mortgage bonds guaranteed by companies such as Fannie Mae and Freddie Mac returned 4.8 percentage points more than Treasuries this year, their best performance in at least 20 years, according to Barclays Capital index data. Last year, the debt returned 2.15 percentage points less than government notes.
The Fed began purchases in the $5.4 trillion market of securities guaranteed by government-supported Fannie Mae and Freddie Mac or federal agency Ginnie Mae in January, acquiring a net $1.1 trillion so far.
Yields on Washington-based Fannie Mae’s current-coupon 30- year fixed-rate mortgage bonds were 4.53 percent yesterday, below the average of 5.59 percent in the five years through 2008, according to data compiled by Bloomberg.
The bonds yield 0.74 percentage point more than 10-year Treasuries, compared with the average of 1.27 percentage point over the past five years, and as high as 2.38 percentage points in March 2008. The spread was 0.68 percentage point on Nov. 24, the narrowest since 1992.
Bank Demand
Banks will probably buy more of the securities as that gap widens, limiting increases, according to John Anzalone, head of research and trading for mortgage bonds at the institutional unit of Atlanta-based asset manager Invesco Ltd.
“Banks are buying Treasuries right now, so you’ve got to figure at some point” mortgage bonds will be in demand, said Anzalone, whose firm oversees $414 billion in assets. “The question is just how far” spreads need to widen, he said.
Commercial banks’ holdings of Treasury and agency debt excluding mortgage securities rose $93.9 billion since June 30 to $424.7 billion, while their investments in agency mortgage bonds expanded $16.3 billion to $1 trillion, Fed data show.
Mortgage-bond yields help determine what lenders must charge consumers on home loans to make a profit when selling the debt, which in turn provides cash for new lending. Yields on the agency mortgage bonds are guiding rates on almost all new U.S. home lending following the collapse of the non-agency market in 2007 and a retreat by banks.
Falling Rates
The rally in the bond market has helped pushed the average rate on a typical 30-year fixed mortgage to a record low of 4.71 percent in the week ended Dec. 11, according to McLean, Virginia-based Freddie Mac. While the rate has since risen to 5.05 percent, it’s below the average of 6.05 percent last year and as high as 8.64 percent in May 2000.
Signs that housing may have bottomed are emerging. Sales of existing homes jumped 7.4 percent to a 6.54 million annual rate in November, the highest since February 2007, the National Association of Realtors said Dec. 22 in Washington. The S&P/Case-Shiller index of home prices in 20 U.S. cities rose 0.4 percent in October from September, the fifth consecutive gain.
Obstacles to a recovery include 10 percent unemployment; expiring tax credits for buyers; as many as 10 million looming foreclosures; and a plan to tighten standards at the Federal Housing Administration, the U.S. mortgage-insurance agency involved in about a third of loans for home purchases, according to analysts including Merrill Ross at BGB Securities Inc. Arlington, Virginia, and Laurie Goodman of Amherst Securities Group in New York.
Housing Doubts
The Fed may decide to continue purchasing mortgage bonds if the rebound in the property market proves short-lived, Invesco’s Anzalone said. Bernanke said in Dec. 3 testimony to Congress that officials “will have to see how the economy is evolving and whether or not we need to do more.”
While the S&P/Case-Shiller index shows home values are rising after a record 33 percent drop from 2006, Pacific Investment Management Co. mortgage-bond head Scott Simon said such data is misleading because of a temporary curb on home seizures tied to government anti-foreclosure efforts that will reverse next year.
Newport Beach, California-based Pimco’s Total Return Fund, the world’s biggest bond fund, cut holdings of mortgage securities as the Fed bought, to 12 percent in October, the lowest since at least 2000, from 62 percent on Dec. 31, according to the firm’s Web site. Government debt rose to 63 percent in September, the most in five years, before falling to 51 percent.
Treasury Purchases
The central bank stopped buying Treasuries in the last week of October. Since then, the yield on the benchmark 10-year note has risen to 3.79 percent from 3.50 percent. It will rise to 3.97 percent by the end of next year, according to the median estimate of 60 economists and strategists surveyed by Bloomberg.
It’s unlikely the Fed’s exit will create “dramatically” higher mortgage rates, said William Cunningham, global head of credit strategies and fixed-income research at the investment unit of Boston-based State Street Corp., the world’s largest money manager for institutions.
Cunningham cited tighter mortgage-bond spreads after the Fed’s purchases slowed in October. Issuance fell at the same time as a result of lower refinancing and home buying, meaning the Fed reduction “really hasn’t had the detrimental impact a lot of people were anticipating,” he said.
Supply Outlook
Limited supply is likely to help the market next year too, he said. Issuance of agency mortgage bonds may fall 20 percent in 2010, according to New York-based Citigroup Inc.
“The disruption, relative to the swings we’ve seen over the past year, should remain relatively muted,” said Roger Bayston, a senior vice president in San Mateo, California-based Franklin Templeton Investment’s fixed-income group, which oversees more than $200 billion of bonds. “I don’t think anybody wants to see higher mortgage rates, given the fragility of the housing market and broader economy at this time.”
All parts of the credit market may suffer if Bernanke retreats, after tight spreads on mortgage securities pushed bond buyers into debt such as low-rated company bonds and mortgage securities without government backing, according to JPMorgan.
“We can see the Fed’s footprints indirectly in many other markets as healing has spread,” Matt Jozoff, a New York-based mortgage-bond analyst at JPMorgan, wrote in an outlook report for 2010.
The mortgage-bond market also may face challenges from policies at Fannie Mae and Freddie Mac, even after the Treasury on Dec. 24 gave them more time to shrink their own holdings of the bonds. They are set to begin buying defaulted and modified mortgages from the securities they guarantee at a faster pace, according to Credit Suisse. That may hurt bonds with relatively high coupons, which Pimco’s Simon said are most overvalued.
Mortgage Rates in U.S. Rise to Highest in Four Months
Dec. 31 (Bloomberg) -- Mortgage rates in the U.S. rose to the highest since August, raising the prospect that the budding housing recovery will stall as home buying becomes more costly.
The rate for 30-year fixed U.S. home loans rose to 5.14 percent for the week ended today from 5.05 percent, mortgage finance company Freddie Mac said. That’s the fourth consecutive weekly increase. A record low of 4.71 percent was reached in the week ended Dec. 3. This week’s average 15-year rate was 4.54 percent, the McLean, Virginia-based company said today in a statement.
“If you start to see rates heading toward 6 percent, that will create some political attention,” said Donald J. Rissmiller, chief economist at Strategas Research Partners in New York. The important thing to watch is what happens to rates in the period after the holidays, which is usually a slow time for housing sales and refinancing, Rissmiller said.
Rising mortgage rates may hamper the nation’s economy and housing market as it becomes more expensive for consumers to buy homes or refinance existing loans. A Federal Reserve program to purchase as much as $1.25 trillion in securities backed by home loans helped reduce mortgage rates this year. The program is scheduled to end in the first quarter of 2010.
The bond purchases from Fannie Mae, Freddie Mac and Ginnie Mae, which buy mortgages from lenders and package them into bonds, brought down yields on the securities this year and allowed lenders to reduce mortgage rates while still selling the securities at a profit.
The Mortgage Bankers Association’s index of applications to purchase a home or refinance a mortgage fell 11 percent for the week ending Dec. 18, the first decline in a month, as both purchases and refinancing weakened. The Washington, D.C.-based group didn’t issue data for the week ending Dec. 25 because of the U.S. holidays. Its next data release will be Jan. 6 for the prior two weeks.
The rate for 30-year fixed U.S. home loans rose to 5.14 percent for the week ended today from 5.05 percent, mortgage finance company Freddie Mac said. That’s the fourth consecutive weekly increase. A record low of 4.71 percent was reached in the week ended Dec. 3. This week’s average 15-year rate was 4.54 percent, the McLean, Virginia-based company said today in a statement.
“If you start to see rates heading toward 6 percent, that will create some political attention,” said Donald J. Rissmiller, chief economist at Strategas Research Partners in New York. The important thing to watch is what happens to rates in the period after the holidays, which is usually a slow time for housing sales and refinancing, Rissmiller said.
Rising mortgage rates may hamper the nation’s economy and housing market as it becomes more expensive for consumers to buy homes or refinance existing loans. A Federal Reserve program to purchase as much as $1.25 trillion in securities backed by home loans helped reduce mortgage rates this year. The program is scheduled to end in the first quarter of 2010.
The bond purchases from Fannie Mae, Freddie Mac and Ginnie Mae, which buy mortgages from lenders and package them into bonds, brought down yields on the securities this year and allowed lenders to reduce mortgage rates while still selling the securities at a profit.
The Mortgage Bankers Association’s index of applications to purchase a home or refinance a mortgage fell 11 percent for the week ending Dec. 18, the first decline in a month, as both purchases and refinancing weakened. The Washington, D.C.-based group didn’t issue data for the week ending Dec. 25 because of the U.S. holidays. Its next data release will be Jan. 6 for the prior two weeks.
U.S. Jobless Claims Drop to Lowest Level Since 2008
Dec. 31 (Bloomberg) -- Fewer Americans than anticipated filed claims for unemployment benefits last week, pointing to an improvement in the labor market that will help sustain economic growth next year.
Initial jobless claims fell by 22,000 to 432,000 in the week ended Dec. 26, the lowest level since July 2008, Labor Department figures showed today in Washington. The number of people collecting unemployment insurance fell in the prior week to 4.98 million, and those receiving extended benefits jumped.
Companies are retaining staff as sales improve and production picks up. Gains in consumer spending, which accounts for 70 percent of the economy, may encourage more hiring in coming months, helping to bolster the rebound from the worst recession since the 1930s.
“It’s boding well for outright job growth,” said Stephen Gallagher, chief U.S. economist at Societe Generale in New York, who forecast claims would drop to 430,000. “It seems that some of the layoffs that took place in the early part of the year were excessive.”
Treasury securities fell after the report, pushing the yield on the benchmark 10-year note up to 3.89 percent at 10:41 a.m. in New York from 3.79 percent late yesterday. The Standard & Poor’s 500 Index was down 0.3 percent to 1,123.45.
Unexpected Drop
Economists forecast claims would rise to 460,000 from a previously reported 452,000, according to the median of 29 projections in a Bloomberg News survey. Estimates ranged from 430,000 to 490,000.
“What we’ve seen is definite stability and just a hint toward things trying to get better,” Jeffrey Joerres, chief executive officer of Manpower Inc., said in a Bloomberg Television interview today. The world’s second-largest provider of temporary workers, is experiencing “slow but steady increases in people who are out on assignment,” he said. “It’s a little in every office, which is a good sign because it’s broad-based.”
A Labor Department spokesman said last week’s figures were “consistent” with recent trends and were not influenced by any unusual factors. Even so, the week of the Christmas holiday is difficult to adjust for seasonal variations, he said.
The four-week moving average of initial claims, a less volatile measure, dropped to 460,250 last week from 465,750 the prior one. Claims are down from a 26-year high of 674,000 in the week ended March 27.
Continuing claims decreased by 57,000 in the week ended Dec. 19, reaching the lowest level since February. The continuing claims figure does not include the number of Americans receiving extended benefits under federal programs.
Extended Benefits
Today’s report showed the number of people who’ve use up their traditional benefits and are now collecting extended payments climbed by about 199,000 to 4.82 million in the week ended Dec. 12. Twenty-nine of the states and territories where workers are eligible to receive government extension have begun to report that data, a Labor Department spokesman said. Two states have started reporting data on the latest emergency extension, he said.
President Barack Obama this month signed into law legislation that included a stopgap provision to ensure that unemployment benefits weren’t cut off over the holidays.
The unemployment rate among people eligible for benefits, which tends to track the jobless rate, held at 3.8 percent in the week ended Dec. 19, today’s report showed.
State Breakdown
Twenty-seven states and territories reported a decrease in claims, while 26 reported an increase. These data are reported with a one-week lag.
The government is scheduled to release its December payrolls report on Jan. 8. In November, the economy lost the fewest jobs since the recession began two years ago and the unemployment rate receded to 10 percent from a 26-year high of 10.2 percent the prior month.
Even so, Americans are concerned about their financial future. Fewer consumers in December believed their incomes will increase over the next three to six months, the Conference Board’s confidence report this week showed.
Warren Buffett’s Berkshire Hathaway Inc. is among companies that slashed employment in 2009. The Omaha, Nebraska-based company last week said it cut 21,000 workers from its payroll amid a slump at the firm’s manufacturing and retail units. The company and its subsidiaries now have about 225,000 workers, it said in regulatory filings.
Initial jobless claims fell by 22,000 to 432,000 in the week ended Dec. 26, the lowest level since July 2008, Labor Department figures showed today in Washington. The number of people collecting unemployment insurance fell in the prior week to 4.98 million, and those receiving extended benefits jumped.
Companies are retaining staff as sales improve and production picks up. Gains in consumer spending, which accounts for 70 percent of the economy, may encourage more hiring in coming months, helping to bolster the rebound from the worst recession since the 1930s.
“It’s boding well for outright job growth,” said Stephen Gallagher, chief U.S. economist at Societe Generale in New York, who forecast claims would drop to 430,000. “It seems that some of the layoffs that took place in the early part of the year were excessive.”
Treasury securities fell after the report, pushing the yield on the benchmark 10-year note up to 3.89 percent at 10:41 a.m. in New York from 3.79 percent late yesterday. The Standard & Poor’s 500 Index was down 0.3 percent to 1,123.45.
Unexpected Drop
Economists forecast claims would rise to 460,000 from a previously reported 452,000, according to the median of 29 projections in a Bloomberg News survey. Estimates ranged from 430,000 to 490,000.
“What we’ve seen is definite stability and just a hint toward things trying to get better,” Jeffrey Joerres, chief executive officer of Manpower Inc., said in a Bloomberg Television interview today. The world’s second-largest provider of temporary workers, is experiencing “slow but steady increases in people who are out on assignment,” he said. “It’s a little in every office, which is a good sign because it’s broad-based.”
A Labor Department spokesman said last week’s figures were “consistent” with recent trends and were not influenced by any unusual factors. Even so, the week of the Christmas holiday is difficult to adjust for seasonal variations, he said.
The four-week moving average of initial claims, a less volatile measure, dropped to 460,250 last week from 465,750 the prior one. Claims are down from a 26-year high of 674,000 in the week ended March 27.
Continuing claims decreased by 57,000 in the week ended Dec. 19, reaching the lowest level since February. The continuing claims figure does not include the number of Americans receiving extended benefits under federal programs.
Extended Benefits
Today’s report showed the number of people who’ve use up their traditional benefits and are now collecting extended payments climbed by about 199,000 to 4.82 million in the week ended Dec. 12. Twenty-nine of the states and territories where workers are eligible to receive government extension have begun to report that data, a Labor Department spokesman said. Two states have started reporting data on the latest emergency extension, he said.
President Barack Obama this month signed into law legislation that included a stopgap provision to ensure that unemployment benefits weren’t cut off over the holidays.
The unemployment rate among people eligible for benefits, which tends to track the jobless rate, held at 3.8 percent in the week ended Dec. 19, today’s report showed.
State Breakdown
Twenty-seven states and territories reported a decrease in claims, while 26 reported an increase. These data are reported with a one-week lag.
The government is scheduled to release its December payrolls report on Jan. 8. In November, the economy lost the fewest jobs since the recession began two years ago and the unemployment rate receded to 10 percent from a 26-year high of 10.2 percent the prior month.
Even so, Americans are concerned about their financial future. Fewer consumers in December believed their incomes will increase over the next three to six months, the Conference Board’s confidence report this week showed.
Warren Buffett’s Berkshire Hathaway Inc. is among companies that slashed employment in 2009. The Omaha, Nebraska-based company last week said it cut 21,000 workers from its payroll amid a slump at the firm’s manufacturing and retail units. The company and its subsidiaries now have about 225,000 workers, it said in regulatory filings.
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