Market Update 02/06/12
Market Comment
Mortgage bond prices were only slightly higher last week, which kept mortgage interest rates in check. There were rate improvements throughout the middle of the week tied to weaker than expected ADP employment figures. Unfortunately, a lot of those gains were erased Friday morning with the release of the employment report. Unemployment came in @ 8.3% which was better than the expected 8.5% mark. Payrolls increased 243k, which was considerably stronger than the expected 155k increase. Stocks rallied and MBS prices fell as a result. Mortgage bonds ended the week unchanged to better by 1/8 of a discount point despite the strong negative movement Friday.
LOOKING AHEAD
|
Economic |
Release |
Consensus |
|
| 3-year Treasury Note Auction |
Tuesday, Feb. 7, |
None | Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates. |
| Consumer Credit |
Tuesday, Feb. 7, |
$9.56b | Low importance. A significantly large increase may lead to lower mortgage interest rates. |
| 10-year Treasury Note Auction |
Wednesday, Feb. 8, |
None | Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates. |
| Weekly Jobless Claims |
Thursday, Feb. 9, |
375k | Important. An indication of employment. Higher claims may result in lower rates. |
| 30-year Treasury Bond Auction |
Thursday, Feb 9, |
None | Important. Bonds will be auctioned. Strong demand may lead to lower mortgage rates. |
| Trade Data |
Friday, Feb. 10, |
$45b deficit | Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates. |
| U of Michigan Consumer Sentiment |
Friday, Feb. 10, |
60.5 | Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates. |
Auctions
US Treasury bonds do not directly dictate fixed mortgage interest rate pricing however they do have an indirect impact. Treasuries are used as a hedge for the interest rate risk associated with mortgage-backed security investing. Mortgage-backed securities have the potential for prepayment that Treasuries do not. Both Treasuries and mortgage bonds often track in the same direction but this is not always the case. There are many times that Treasuries and mortgage bonds move inversely.
Despite the overwhelming size of the US economy, foreign investors can still have an effect on moving the financial markets. When foreign economies struggle foreign investors often purchase US based investments including mortgage bonds. This demand usually causes mortgage bond prices to rise and interest rates to fall. This flight to quality buying is one of the factors helping mortgage interest rates remain historically low.
The Fed recently noted that continued global economic turmoil will be a factor in the health of the US economy. How that all plays out is still uncertain.
The Treasury auctions this week will be important in determining the current appetite of foreign investors for dollar denominated debt securities. Demand has been generally good as of late but auctions of different durations often vary in their results. Mortgage bond prices could fall pressuring mortgage interest rates higher if the auctions this week are poorly bid. The inverse is also true. Be alert heading into the auctions.
Market Update 01/30/12
Mortgage bond prices were higher last week which pushed mortgage interest rates lower. Rates were helped considerably by the Fed announcement which indicated they would try to keep rates low through 2014. This was a significant revision to prior remarks which set 2013 as the timeframe. The Fed went on to note that global markets pose significant downside risk to the US economic outlook and inflation remains subdued. Much of the data released was bond friendly. Higher than expected weekly jobless claims and weaker than expected GDP data helped rates hold the improvements towards the end of the week. Mortgage bonds ended the week better by almost a discount point.
|
Economic |
Release |
Consensus |
|
| Personal Income and Outlays |
Monday, Jan. 30, |
Up 0.2%, |
Important. A measure of consumers’ ability to spend. Weakness may lead to lower mortgage rates. |
| PCE Core Inflation |
Monday, Jan. 30, 8:30 am, et |
Up 0.1% |
Important. A measure of price increases for all domestic personal consumption. Weaker figure may help rates improve. |
| Q4 Employment Cost Index |
Tuesday, Jan. 31, |
Up 0.2% |
Very important. A measure of wage inflation. Weakness may lead to lower rates. |
| Consumer Confidence |
Tuesday, Jan. 31, |
63.5 |
Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates. |
| ADP Employment |
Wednesday, Feb. 1, |
280k |
Important. An indication of employment. Weakness may bring lower rates. |
| ISM Index |
Wednesday, Feb. 1, |
54 |
Important. A measure of manufacturer sentiment. Weakness may lead to lower mortgage rates. |
| Weekly Jobless Claims | Thursday, Feb. 2, 8:30 am, et |
375k | Important. An indication of employment. Higher claims may result in lower rates. |
| Preliminary Q4 Productivity | Thursday, Feb. 2, 8:30 am, et |
Up 2.0% | Important. A measure of output per hour. Improvement may lead to lower mortgage rates. |
| Employment | Friday, Feb. 3, 8:30 am, et |
8.5%, |
Very important. An increase in unemployment or weakness in payrolls may bring lower rates. |
| Factory Orders | Friday, Feb. 3, 10:00 am, et |
Up 1.7% | Important. A measure of manufacturing sector strength. Weakness may lead to lower rates. |
ISMThe Institute for Supply Management (ISM), formerly the National Association of Purchasing Management (NAPM), releases the “Report on Business” on the first working day of each month. Part of this report is the “diffusion index,” which tracks the economy’s ups and downs fairly well.
In conducting this survey, the ISM questions purchasing executives from over 250 industrial companies compiling data on production, orders, commodity prices, inventories, vendor performance, and employment. Each of the respondents is asked to rank the categories as “up” or “down.” Various weights are applied to the individual components to form the composite index. A composite index reading of 50 can be thought of as a “swing point.” A reading above 50 implies an increase in economic activity, while a reading below 50 indicates a decline. The ISM report is difficult for economists to forecast because there is little data upon which to base an educated guess. The report has a large “surprise factor” and can cause market swings.
Market Update 01/23/12
Market Comment
Mortgage bond prices were lower last week, which pushed mortgage interest rates higher. Inflation fears were reignited when the core producer price index came in higher than expected. Germany had a successful 2Y debt auction, which alleviated some of the short-term Euro debt concerns. Germany has been one of the few bright spots for the Euro and is credited with keeping other Euro nations afloat. Spain and France also had decent debt auctions later in the week, which also reversed some of the flight to quality buying of US debt we saw recently. The weekly jobs data wasn’t as bad as expected which also added to MBS losses for the week. Mortgage bonds ended the week worse by approximately 1/2 of a discount point.
LOOKING AHEAD
|
Economic |
Release |
Consensus |
|
| 2-year Treasury Note Auction |
Tuesday, Jan. 24, |
None | Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates. |
| Fed Meeting Adjourns |
Wednesday, Jan. 25, |
No rate changes | Important. Few expect the Fed to change rates, but some volatility may surround the adjournment of this meeting. |
| 5-year Treasury Note Auction |
Wednesday, Jan. 25, |
None | Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates. |
| Weekly Jobless Claims |
Thursday, Jan. 26, |
355k | Important. An indication of employment. Higher claims may result in lower rates. |
| Durable Goods Orders | Thursday, Jan. 26, 8:30 am, et |
Up 0.8% | Important. An indication of the demand for “big ticket” items. Weakness may lead to lower rates. |
| New Home Sales | Thursday, Jan. 26, 10:00 am, et |
320k | Important. An indication of economic strength and credit demand. Weakness may lead to lower rates. |
| Leading Economic Indicators | Thursday, Jan. 26, 10:00 am, et |
Up 0.3% | Important. An indication of future economic activity. A smaller increase may lead to lower rates. |
| 7-year Treasury Note Auction |
Thursday, Jan. 26, |
None | Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates. |
| Q3 Advance GDP |
Friday, Jan. 27, |
Up 1.7% | Very important. The aggregate measure of US economic production. Weakness may lead to lower rates. |
| U of Michigan Consumer Sentiment |
Friday, Jan. 27, |
62 | Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates. |
Fed Focus
The United States central bank, the Federal Reserve, coordinates the borrowing and lending activities of federally chartered banks. The principal reason the Federal Reserve was created was to reduce severe financial crises. One way of accomplishing this goal is to control the amount of money that flows through the economy. By manipulating the US money supply, the Fed influences inflation, unemployment, and the level of US economic activity. The Fed has a variety of tools that it uses to control the money supply, but its chief policy tool is the manipulation of short-term interest rates.
No rate changes are expected at the Wednesday meeting but there is concern about the future. The Fed indicated they hope to keep rates low into 2013 but also indicated they would be ready to make changes to that policy as warranted. Their post meeting remarks will be carefully analyzed.
Market Update 01/16/12
Market Comment
Mortgage bond prices were higher last week which helped mortgage interest rates improve. The Euro debt crisis dominated trading as market direction swung rapidly on news articles throughout the week. Last Tuesday, Fitch Ratings reported that French triple A credit was safe. Spain and Italy had decent debt auctions. These events kept MBS prices in check early in the week. Fortunately, higher than expected jobless claims Thursday and S&P Ratings downgrade rumors for France on Friday pushed MBS prices in the right direction. Mortgage bonds ended the week better by approximately 3/8 to 1/2 of a discount point.
|
Economic |
Release |
Consensus |
|
| Martin Luther King Day |
Monday, Jan. 16 |
Important. Extended holiday weekend may result in market volatility when trading resumes Tuesday. | |
| Producer Price Index |
Wednesday, Jan. 18, |
Up 0.3%, |
Important. An indication of inflationary pressures at the producer level. Weaker figures may lead to lower rates. |
| Industrial Production | Wednesday, Jan. 18, 9:15 am, et |
Up 0.1% |
Important. A measure of manufacturing sector strength. A lower than expected increase may lead to lower rates. |
| Capacity Utilization | Wednesday, Jan. 18, 9:15 am, et |
77.7% |
Important. A figure above 85% is viewed as inflationary. Weaker figure may lead to lower rates. |
| Weekly Jobless Claims | Thursday, Jan. 19, 8:30 am, et |
392k |
Important. An indication of employment. Higher claims may result in lower rates. |
| Consumer Price Index | Thursday, Jan. 19, 8:30 am, et |
Up 0.2%, |
Important. A measure of inflation at the consumer level. Weaker figures may lead to lower rates. |
| Housing Starts | Thursday, Jan. 19, 8:30 am, et |
655k | Important. A measure of housing sector strength. Weakness may lead to lower rates. |
| Philadelphia Fed Survey | Thursday, Jan. 19, 10:00 am, et |
8.9 | Moderately important. A survey of business conditions in the Northeast. Weakness may lead to lower rates. |
| 10-year Treasury TIPS Auction | Thursday, Jan. 19, 1:15 pm, et |
None | Important. TIPS will be auctioned. Strong demand may lead to lower mortgage rates. |
European TurmoilThe newswires were full of European downgrade rumors last Friday as French news reports indicated France and four other countries would soon see their credit ratings downgraded. Spain, Portugal, and Italy were rumored to face a two notch credit rating cut while France would lose triple A rating. This would likely put additional pressure on Germany despite the fact it is expected to maintain triple A status. The European Financial Stability Facility is a special entity created to help fight the European debt crisis. The EFSF relies heavily on France and Germany to fund the loans it provides to troubled eurozone countries.
This news came amid earlier reports that Banks holding Greek debt failed to come to an agreement on a write-down and reignited fears of a Greek default. Charles Dallara, the head of the Institute of International Finance which is representing the banks in EU negotiations, indicated “there is no agreement on any element of a deal.” Things don’t look good for Greece.
The terrible news out of Europe has some positive news for the US as mortgage interest rates benefit from flight to quality buying in the short term. Now is a great time to take advantage of the historically low rates.
Market Update 01/09/12
Market Comment
Mortgage bond prices were slightly higher last week, which kept mortgage interest rates relatively in check. We started the week with worse rates as stocks surged higher following the extended holiday weekend and the DOW was up 225 points at pricing Tuesday morning. Fortunately, weaker than expected factory orders data Wednesday helped reverse the upward trend in rates and got us back near unchanged on the week. The European debt crisis continued which generally helped US debt instruments. Mortgage bonds ended the week unchanged to better by approximately 1/8 of a discount point.
The Treasury auctions this week will provide an indication of foreign appetite for US debt.
LOOKING AHEAD
|
Economic |
Release |
Consensus |
|
| 3-year Treasury Note Auction |
Tuesday, Jan. 10, |
None | Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates. |
| 10-year Treasury Note Auction |
Wednesday, Jan. 11, |
None | Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates. |
| Fed “Beige Book” |
Wednesday, Jan. 11, |
None | Important. This Fed report details current economic conditions across the US. Signs of weakness may lead to lower rates. |
| Weekly Jobless Claims |
Thursday, Jan. 12, |
365k | Important. An indication of employment. Higher claims may result in lower rates. |
| Retail Sales |
Thursday, Jan. 12, |
Up 0.2% | Important. A measure of consumer demand. Weakness may lead to lower mortgage rates. |
| 30-year Treasury Bond Auction |
Thursday, Jan. 12, |
None | Important. Bonds will be auctioned. Strong demand may lead to lower mortgage rates. |
| Trade Data |
Friday, Jan. 13, |
$43b deficit | Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates. |
| U of Michigan Consumer Sentiment |
Friday, Jan. 13, |
65.5 | Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates. |
Employment Results
The December employment report came in stronger than expected with the headline rate surprisingly lower and the jobs figure better than expected. Fortunately stocks took a dive later Friday morning and rates were able to rebound a little later in the morning recovering the initial weakness. Unemployment came in at 8.5%, considerably better than the 8.7% rate that was expected and not bond friendly. The payrolls component showed jobs increased 200,000 compared to the 150,000 increase expected by analysts. The mortgage bond market had an initial negative reaction to the report.
The Bureau of Labor Statistics (BLS) of the U.S. Department of Labor compiles data from two different surveys, the household survey and the establishment survey, in order to complete the employment report. This explains why sometimes there is a divergence between the unemployment rate and payrolls figures each month. The payrolls figure usually receives the greater weight from analysts but the headline figure covers the news headlines.
Job gains occurred in transportation and warehousing, retail trade, manufacturing, health care, and mining.
Market Update 01/02/12
Mortgage bond prices were higher last week which pushed mortgage interest rates lower. We started the week with some unfriendly data as the consumer confidence report was higher than expected. Fortunately, thin trading conditions amid the holidays, the shortened trading week, and jittery stocks all went well for MBS prices. Weekly jobless claims were higher than expected. Claims came in @ 381k compared to the expected 375k mark. Mortgage bonds ended the week better by approximately 1/2 of a discount point.The employment data this week will likely result in some mortgage interest rate volatility. LOOKING AHEAD
|
Economic |
Release |
Consensus |
|
| ISM Index |
Tuesday, Jan. 3, |
52.8 |
Important. A measure of manufacturer sentiment. Weakness may lead to lower mortgage rates. |
| Construction Spending |
Tuesday, Jan. 3, |
Up 0.8% |
Low importance. An indication of economic strength. Significant weakness may lead to lower rates. |
| Fed Minutes |
Tuesday, Jan. 3, |
None |
Important. Details of the last Fed meeting will be thoroughly analyzed. |
| Factory Orders |
Wednesday, Jan. 4, |
Up 0.6% |
Important. A measure of manufacturing sector strength. Weakness may lead to lower rates. |
| ADP Employment |
Thursday, Jan. 5, |
165k |
Important. An indication of employment. Weakness may bring lower rates. |
| Weekly Jobless Claims |
Thursday, Jan. 5, |
379k | Important. An indication of employment. Higher claims may result in lower rates. |
| Employment |
Friday, Jan. 6, |
8.8%, |
Very important. An increase in unemployment or weakness in payrolls may bring lower rates. |
The Year AheadThe future of the economy, recovery or additional weakness, will continue to be debated. There is no certainty in predictions. Data can be used to support both sides of the debate. What we can be certain of is the fact that mortgage interest rates are likely to remain volatile until the economy gains some stability. Historically, mortgage interest rates seem to improve slowly. In contrast, when rates increase, it is often fast and furious. One negative day often erases a week of positive improvements. Of course even that maxim was tested the last few months of last year as market swings of 1/2 a discount point both up and down were often seen in very short spans of time.
It is possible for mortgage interest rates to push lower considering the Fed still wants to keep rates relatively low. However, we are in unprecedented times and we have seen rate volatility throughout last year. The Fed isn’t the only player in the financial markets and there are many others buying and selling securities. Remember that the Fed does not directly dictate that mortgage interest rates will be at a certain rate. Rates are determined by the supply and demand for mortgage-backed securities. However, the Fed is the major player in the market at this time and they do set the lead.
Despite volatility throughout 2011, the Fed kept rates low. The big unknown is how things will play out this year. Now is a great time to take advantage of mortgage interest rates at these still historically favorable levels.
Market Update 12/27/11
Market Comment
Mortgage bond prices were lower last week, which pushed mortgage interest rates a little higher. Rates came under pressure early in the week as the DOW surged higher Tuesday. Rates came under further pressure as the European Central Bank opened a long term financing facility to help ease the credit crisis in the region. Leading economic indicators and University of Michigan consumer sentiment data both came in higher than expected. The debt auctions were generally average at best. Mortgage bonds ended the week worse by approximately 1/2 of a discount point.
LOOKING AHEAD
|
Economic |
Release |
Consensus |
|
| Consumer Confidence |
Tuesday, Dec. 27, |
56.2 | Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates. |
| Weekly Jobless Claims |
Thursday, Dec. 29, |
362k | Important. An indication of employment. Higher claims may result in lower rates. |
| Early Market Close |
Friday, Dec. 30, |
Important. Thin trading conditions are likely ahead of the extended holiday weekend. |
Liquidity
In years past a borrower would visit their local savings and loan to obtain a mortgage. The Loan Officer at the bank would approve the mortgage and fund it with cash reserves from the vault. This system worked well until the bank ran out of money to lend. Borrowers came to the S&L looking for a loan and were told to come back when a current mortgage paid off. What the bank needed was a way to sell the loans they made freeing up the capital to lend to new borrowers. This way they could lend the “same” money over and over, earning an income from servicing the loans and assisting the community by offering a near limitless pool of money.
To address this issue, FNMA and GNMA were established. The goal is to provide cheap mortgage money to prospective homeowners and a high quality bond for the investment community. The bond or Mortgage Backed Security (MBS) take mortgages with similar risk characteristics and pool them together. Investors in the MBS’s know ahead of time the return they are going to receive, much like a Certificate of Deposit. To ensure the performance of the bond, each mortgage is underwritten to specific guidelines.
During the past real estate boom underwriting guidelines were relaxed giving way to a whole new menu of mortgage products such as 100% financing. In addition, to streamline the influx of applications, income and asset verification took a back seat to a borrower with strong credit. With housing prices rising rapidly, the property could be sold to cover the note and foreclosure costs if this occurred. This cycle worked well until the price of houses moderated in 2006. Once the housing market began to cool and prices moderated, foreclosed homes were being sold for less than the notes. To add insult to injury, the loans underwritten to the looser guidelines did not perform as hoped. With the value of the collateral in question (falling home prices) and the future performance of the borrowers unknown, investors’ appetite for this risk waned. Unfortunately the liquidity issues associated with Alt A and subprime loans carried over to more secure AAA GNMA and FNMA loans. Sellers of AAA MBS’s found it more difficult to find buyers. Fortunately the Fed eventually stepped and purchased mortgage-backed securities in an unprecedented effort to keep rates low, the housing market from crumbling, and the entire economy afloat. For all the criticism the Fed receives, these efforts have been successful so far.
How this all plays out in the long term is still up for debate. The one thing that is certain is that rates remain historically very favorable. Now is a great time to take advantage of these low mortgage interest rates.
Market Update 12/19/11
Mortgage bond prices were slightly higher last week but not enough for mortgage interest rates to see any considerable improvements. Rates came under pressure early in the week as the IMF looked to spend billions of Euros to help stem the debt concerns. Rates bounced back following the Fed meeting Tuesday and stayed relatively in check throughout the rest of the week with choppy but tight trading. The consumer and producer inflation data was mixed with core CPI data slightly higher than expected and core PPI data weaker than expected. The debt auctions generally showed strong foreign demand. Mortgage bonds ended the week better by approximately 1/8 of a discount point. LOOKING AHEAD
|
Economic |
Release |
Consensus |
|
| Treasury Auctions Begin |
Monday, Dec. 19, |
None |
Important. There will be auctions Monday 2Y, Tuesday 5Y, and Wednesday 7Y. |
| Housing Starts | Tuesday, Dec. 20, 8:30 am, et |
615k |
Important. A measure of housing sector strength. Weakness may lead to lower rates. |
| Existing Home Sales | Wednesday, Dec. 21, 10:00 am, et |
4.9m |
Low importance. An indication of mortgage credit demand. Significant weakness may lead to lower rates. |
| Weekly Jobless Claims | Thursday, Dec. 22, 8:30 am, et |
369k |
Important. An indication of employment. Higher claims may result in lower rates. |
| Q3 GDP Third Estimate | Thursday, Dec. 22, 8:30 am, et |
Up 1.9% |
Important. The aggregate measure of US economic production. Weakness may lead to lower rates. |
| U of Michigan Consumer Sentiment | Thursday, Dec. 22, 10:00 am, et |
67.7 | Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates. |
| Leading Economic Indicators | Thursday, Dec. 22, 10:00 am, et |
Up 0.5% | Important. An indication of future economic activity. A smaller increase may lead to lower rates. |
| Durable Goods Orders | Friday, Dec. 23, 8:30 am, et |
Down 0.2% | Important. An indication of the demand for “big ticket” items. Weakness may lead to lower rates. |
| Personal Income and Outlays | Friday, Dec. 23, 8:30 am, et |
Up 0.2%, |
Important. A measure of consumers’ ability to spend. Weakness may lead to lower mortgage rates. |
| PCE Core Inflation | Friday, Dec. 23, 8:30 am, et |
Up 0.1% | Important. A measure of price increases for all domestic personal consumption. Weaker figure may help rates improve. |
| New Home Sales | Friday, Dec. 23, 10:00 am, et |
298k | Important. An indication of economic strength and credit demand. Weakness may lead to lower rates. |
Fed Statement The Fed statement from the meeting last week indicated, “The Committee is maintaining its existing policies of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities.” This is generally good news for mortgage interest rates in the short term as the Fed buying keeps MBS prices high and rates low. However, this is no guarantee that mortgage interest rates will continually push lower. The Fed noted they will “regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate.” Rates are historically very favorable and financial conditions can change daily. Remember, the current rates are a given.
Market Update 12/12/11
Market Comment
Mortgage bond prices ended slightly higher last week, which pushed mortgage interest rates lower. The Euro debt crisis continued to take center stage. The European Central Bank cut rates in a move to help avoid another recession in the region. Economic activity in Europe slipped in recent months as the debt crisis expanded and solutions were fleeting. This global economic uncertainty sent flight to quality buying of US mortgage-backed securities. MBSs traded in a choppy but tight pattern throughout the week. Stocks were volatile but held most of the recent gains as the limited data was generally stock friendly. Mortgage bonds ended the week better by approximately 3/8 to 1/2 of a discount point
LOOKING AHEAD
|
Economic |
Release |
Consensus |
|
| Treasury Auctions Begin |
Monday, Dec. 12, |
None | Important. There will be auctions Monday 3Y, Tuesday 10Y, Wednesday 30Y, and Thursday 5Y TIPS. |
| Retail Sales |
Tuesday, Dec. 13, |
Up 0.6% | Important. A measure of consumer demand. A smaller than expected increase may lead to lower rates. |
| Fed Meeting Adjourns |
Tuesday, Dec. 13, |
No rate changes | Important. Few expect the Fed to change rates, but some volatility may surround the adjournment of this meeting. |
| Weekly Jobless Claims |
Thursday, Dec. 15, |
379k | Important. An indication of employment. Higher claims may result in lower rates. |
| Producer Price Index |
Thursday, Dec. 15, |
Unchanged, Core up 0.1% |
Important. An indication of inflationary pressures at the producer level. Lower figures may lead to lower rates. |
| Industrial Production |
Thursday, Dec. 15, |
Up 0.6% | Important. A measure of manufacturing sector strength. Weakness may lead to lower rates. |
| Capacity Utilization |
Thursday, Dec. 15, |
77.4% | Important. A figure above 85% is viewed as inflationary. Weakness may lead to lower rates. |
| Philadelphia Fed Survey |
Thursday, Dec. 15, |
2.4 | Moderately important. A survey of business conditions in the Northeast. Weakness may lead to lower rates. |
| Consumer Price Index |
Friday, Dec.16, |
Unchanged, |
Important. A measure of inflation at the consumer level. Lower figures may lead to lower rates. |
Retail Sales
Retail sales data is the first indication of weakness or strength in consumer spending released each month. The Bureau of the Census of the US Department of Commerce provides information on how much the consumer spends on the purchase of goods. This data provides the consumption part of the gross domestic product. Retail sales data represents merchandise sold for cash or credit by retailers. Durable goods, such as autos, make up 35% of the figure. The balance consists of non-durables such as gasoline, restaurants, and general merchandise. There are several drawbacks to the report. The data covers purchases of goods only, not services. It is also not adjusted for inflation and is extremely volatile. Economists are concerned that the current economic uncertainty will continue to curtail consumer-spending habits especially heading into the holiday season.
Market Update 12/05/11
Market Comment
Mortgage bond prices ended slightly higher last week, which pushed mortgage interest rates lower. Stocks were stronger as the DOW surged higher by 291 points Monday and 490 points Wednesday. The Fed stepped in to help the EU deal with their debt crisis through some liquidity moves along with the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank. The moves generally helped equities across the globe. Mortgage bonds traded in a choppy but tight pattern throughout the week despite the strength in equities. MBS were buoyed by remarks from German Chancellor Merkel which indicated there is no quick fix and the solution to the Euro debt crisis will take years. Mortgage bonds ended the week better by approximately 1/8 to 1/4 of a discount point.
|
Economic |
Release |
Consensus |
|
| Factory Orders |
Monday, Dec. 5, |
Down 0.5% |
Important. A measure of manufacturing sector strength. Weakness may lead to lower rates. |
| Consumer Credit | Wednesday, Dec. 7, 3:00 pm, et |
$7b |
Low importance. A significantly large increase may lead to lower mortgage interest rates. |
| Weekly Jobless Claims | Thursday, Dec. 8, 8:30 am, et |
397k |
Important. An indication of employment. Higher claims may result in lower rates. |
| Trade Data | Friday, Dec. 9, 8:30 am, et |
$44.3b deficit |
Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates. |
| U of Michigan Consumer Sentiment |
Friday, Dec. 9, |
64 |
Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates. |
DisparityThe 10 and 30-year Treasury bond yields are often viewed as “benchmarks”, reflecting the overall state of interest rates in the US economy. Many people concerned about mortgage interest rates track these bonds as a barometer for mortgage interest rates. However, in reality the Treasury and mortgage markets trade independently.
The supply and demand characteristics of Treasury bonds and mortgage-backed securities (MBS) differ significantly. Treasury securities represent money needed to fund the operations of the US government. MBSs, on the other hand, represent borrowing by homeowners.
Information related to Treasury bonds is relatively easy to come by. Almost every major news medium reports changes. On the other hand, accurate mortgage interest rate information is difficult and costly to obtain.
In the absence of information directly related to the mortgage interest rate markets, Treasury information can be useful in that the bond market generally trends in the same direction. However, mortgage interest rates can vary significantly. In fact, many times the Treasuries will trade wildly while MBS only see minor price changes and vice versa. Thus, differences between Treasuries and MBS sometimes lead to misleading price change differentials. Last Wednesday mortgage-backed securities closed down 2/32nds on the day while the 10-year Treasury fell 25/32nds and the 30-year Treasury fell 64/32nds. This is a prime example where anyone that looked solely at Treasuries thought the mortgage market was worsening when in reality mortgage interest rates were near unchanged on the day. The data provides a valuable lesson into the differences between treasury bonds and mortgage-backed securities. This is just another example of why looking solely at treasuries can lead people to the wrong conclusions.
Keying in on the correct information can mean the difference between making and losing a tremendous amount of money when making float and lock decisions in the short term.
 |
© Copyright 2008 Chateau Mortgage of Louisiana, Inc. All rights reserved. Web Site Design & Hosted by: Basix Design |  |