Market Update 09/28/2009
Market Comment
Mortgage bond prices rose last week pushing mortgage interest rates lower. The data was mixed with stronger than expected consumer sentiment and a disappointing 5-year Treasury note auction. Fortunately the Fed meeting resulted in some positive mortgage interest rate movements and strong foreign demand for the 7-year Treasury auction helped rates improve. For the week interest rates fell by about 1/4 of a discount point.The employment report will take center stage this week. Consumer confidence, ADP employment, income, outlays, ISM Index, and factory orders data have the potential to move the financial markets. The recent economic data has been mixed. Remember that the bond market typically likes to see weaker figures with very little price pressures.LOOKING AHEAD
|
Economic |
Release |
Consensus |
|
| Consumer Confidence |
Tuesday, Sept. 29, |
57.0 |
Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates. |
| ADP Employment |
Wednesday, Sept. 30, |
Down 200k |
Important. An indication of employment. A larger decrease may bring lower rates. |
| Q2 GDP final revision |
Wednesday, Sept. 30, |
Down 1.2% |
Moderately important. The aggregate measure of US economic production. Weakness may lead to lower rates. |
| Personal Income and Outlays |
Thursday, Oct. 1, |
Income up 0.1%, |
Important. A measure of consumers’ ability to spend. Weakness may lead to lower mortgage rates. |
| Construction Spending |
Thursday, Oct. 1, |
Down 0.2% | Low importance. An indication of economic strength. A significant decrease may lead to lower rates. |
| ISM Index |
Thursday, Oct. 1, |
54.0 | Important. A measure of manufacturer sentiment. Weakness may lead to lower mortgage rates. |
| Employment |
Friday, Oct. 2, |
9.8%, |
Very important. An increase in unemployment or a larger decrease in payrolls may bring lower rates. |
| Factory Orders |
Friday, Oct. 2, |
Up 1.1% | Important. A measure of manufacturing sector strength. Weakness may lead to lower rates. |
Good NewsThe housing sector of the economy has been hit hard during these troubled economic times. In an effort to stabilize things the Federal Reserve implemented a system to keep mortgage interest rates low through the purchasing of $1.25 trillion of mortgage-backed securities throughout this year. Few can argue the Fed has not been effective with rates at historically favorable levels. However uncertainty still looms regarding the future of mortgage interest rates after the Fed program stops.
The Fed provided some good news last week when they indicated the purchasing of mortgage bonds would be extended into the first quarter of 2010. Prior to the meeting all indications were the program would stop the end of this year. The bad news is that they have not increased the amount to be spent as of yet. This still leaves much uncertainty and some view it as just a delay. The Fed also indicated that long term inflation expectations were stable. This is great news for fixed income securities and the stability of mortgage interest rates. Remember, the current goal of the Fed is to keep mortgage interest rates relatively low and stable. They appear to be content with rates in the current historically favorable range.
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Market Update 09/21/2009
Market Comment
Mortgage bond prices fell last week pushing mortgage interest rates higher. Producer Price Index (PPI) data release last Tuesday was much higher that expected and sparked inflation fears. That data set the tone for negative trading early in the week. Thankfully, the Consumer Price Index (CPI), a better gauge of overall inflation, was lower that expected helping interest rates recover. For the week interest rates rose about 3/8’s of a discount point.
The record debt will once again take center stage this week. If foreign demand remains strong, rates should remain the same or even improve. The Fed meeting will be the most significant event this week. While no adjustments are expected, the Fed remarks will be carefully weighed.
LOOKING AHEAD
|
Economic |
Release |
Consensus |
|
| Leading Economic Indicators |
Monday, Sept. 21, |
Up 0.7% | Important. An indication of future economic activity. A smaller increase may lead to lower rates. |
| 2-year Treasury Note Auction |
Tuesday, Sept. 22, |
None | Important. $43 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates. |
| 5-year Treasury Note Auction |
Wednesday, Sept. 23, |
None | Important. $40 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates. |
| Fed Meeting Adjourns |
Wednesday, Sept. 23, |
No rate change | Important. Few expect the Fed to change rates, but some volatility may surround the adjournment of this meeting. |
| Existing Home Sales |
Thursday, Sept. 24, |
Up 1.7% | Low importance. An indication of mortgage credit demand. Significant weakness may lead to lower rates. |
| 7-year Treasury Note Auction |
Thursday, Sept. 24, |
None | Important. $29 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates. |
| Durable Goods Orders |
Friday, Sept. 25, |
Down 0.1% | Important. An indication of the demand for “big ticket” items. Weakness may lead to lower rates. |
| U of Michigan Consumer Sentiment |
Friday, Sept. 25, |
70.0 | Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates. |
| New Home Sales |
Friday, Sept. 25, |
Up 1.6% | Important. An indication of economic strength and credit demand. A decrease may lead to lower rates. |
New Home Sales
New Home Sales data is compiled monthly by the Department of Commerce’s Census Bureau and is gathered from builders throughout the country. The data represents new home sales for the nation as well as four areas of the country: the Northeast, the Midwest, the South, and the West. Information on the average price of a home, the number of homes for sale, and the supply of unsold homes are also provided. The data is an important indicator because it shows any strength or weakness in the housing sector. A slowdown in new home sales tends to lead to a slowdown in housing starts, which will continue to affect other indicators. New Home Sales data is often volatile and difficult to predict. Most analysts look at a three-month average in order to see any trends in the growth rate. Surges in the release are often greeted with little more than an average reaction in the bond market. However, the data remains significant in showing the condition of the housing sector of the economy.
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Market Update 09/14/2009
Market Comment
Mortgage bond prices rose last week pushing mortgage interest rates lower. The US Treasury auctions went well with relatively strong foreign demand for most issues. The gains came as the Fed continued to pour billions into mortgage bonds in an effort to keep rates low to stabilize the housing sector of the economy. The data was mixed as weekly jobless claims came in better than expected and the Fed “Beige Book” indicated inflation remained in check. For the week interest rates fell by about 3/8 of a discount point.The consumer price index will be the most important data this week. If inflation indications are tame rates will likely hold steady or improve. However, if inflation increases look for mortgage interest rates to spike higher.LOOKING AHEAD
|
Economic |
Release |
Consensus |
|
| Producer Price Index |
Tuesday, Sept. 15, |
Up 0.8%, |
Important. An indication of inflationary pressures at the producer level. Lower figures may lead to lower rates. |
| Retail Sales |
Tuesday, Sept. 15, |
Up 1.6% |
Important. A measure of consumer demand. A smaller than expected increase may lead to lower mortgage rates. |
| Business Inventories |
Tuesday, Sept. 15, |
Down 0.8% |
Low importance. An indication of stored-up capacity. A significantly large increase may lead to lower rates. |
| Consumer Price Index |
Wednesday, Sept. 16, |
Up 0.4%, |
Important. A measure of inflation at the consumer level. Lower figures may lead to lower rates. |
| Industrial Production |
Wednesday, Sept. 16, |
Up 0.7% | Important. A measure of manufacturing sector strength. A lower than expected increase may lead to lower rates. |
| Capacity Utilization |
Wednesday, Sept. 16, |
69.1% | Important. A figure above 85% is viewed as inflationary. Weakness may lead to lower interest rates. |
| Housing Starts |
Thursday, Sept. 17, |
Up 1.2% | Important. A measure of housing sector strength. Weakness may lead to lower rates. |
| Philadelphia Fed Survey |
Thursday, Sept. 17, |
None | Moderately important. A survey of business conditions in the Northeast. Weakness may lead to lower rates. |
Business InventoriesThe report on business inventories basically gives a broader look at the durable goods, factory orders, and retail sales reports. Not only is this report an important part of the investment component of the GDP, but it also provides additional evidence about the economy in the upcoming months. Changes in business inventories slow as the economy approaches a peak, and rise as the economy approaches the trough of a recession. Therefore the change in business inventories is a leading indicator of GDP. The data for this report, which are published by the Department of Commerce’s Census Bureau, comes from a monthly survey of inventories, orders, and manufacturers’ shipments, in addition to the merchant wholesalers and retail trade surveys.
Not a great amount of attention is typically paid to this report due to the fact that much of the data is already available and surprises are rare. The only new information in this report is retail inventories. However, in this environment every piece of data has the potential to cause some volatility.
There still remains some uncertainty about the future of mortgage interest rates. Taking advantage of the recent improvements in rates makes sense.
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Market Update 09/07/2009
Market Comment
Mortgage bond prices rose last week pushing mortgage interest rates lower. The gains came following some stock weakness, signs that unemployment may rise, and better than expected productivity. Increased productivity allows companies to produce more with the same labor input. This helps keep costs in check and alleviates inflation fears.
For the week interest rates fell by about 3/8 of a discount point.
The Fed “Beige Book” will be the most important data this week. The Treasury auctions will also set the tone for mortgage interest rates. Strong foreign demand could result in mortgage interest rates improvements.
LOOKING AHEAD
|
Economic |
Release |
Consensus |
|
| 3-year Treasury Note Auction |
Tuesday, Sept. 8, |
None | Important. $38 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates. |
| Consumer Credit |
Tuesday, Sept. 8, |
Down $4.0 billion | Low importance. A significantly large increase may lead to lower mortgage interest rates. |
| Fed “Beige Book” | Wednesday, Sept 9, 2:00 pm, et |
None | Important. This Fed report details current economic conditions across the US. Signs of weakness may lead to lower rates. |
| 10-year Treasury Note Auction | Wednesday, Sept 9, 1:30 pm, et |
None | Important. $20 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates. |
| Trade Data |
Thursday, Sept. 10, |
$27.0 billion deficit | Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates. |
| 30-year Treasury Bond Auction |
Thursday, Sept. 10, |
None | Important. $12 billion of bonds will be auctioned. Strong demand may lead to lower mortgage rates. |
| U of Michigan Consumer Sentiment |
Friday, Sept. 11, |
67.3 | 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. 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 was one of the factors that helped mortgage interest rates to remain historically low in years past.
There is a real threat that continued global economic turmoil might keep foreign investors from purchasing mortgage bonds in the future. The Treasury auctions this week will be important in determining the current appetite of foreign investors for dollar denominated securities. If this week’s auctions are poorly bid mortgage bond prices could fall pressuring mortgage interest rates higher.
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