Market Update 12/28/2009
Market Comment
Mortgage bond prices fell last week pushing mortgage interest rates higher. The bond market took a beating as stocks surged despite mixed data. Existing home sales in November rose a surprising 7.4%. However, revised gross domestic product figures showed the economy only grew 2.2%, which was weaker than the expected 2.8% mark. Personal income and outlays data came in weaker than expected helping a bit. Unfortunately, the thin trading conditions magnified the earlier losses and made it difficult to recover. For the week interest rates rose by about 1 3/8 discount points.
The Treasury auctions will take center stage next week. If foreign demand falters we will likely see mortgage interest rates head higher. The bond market will close early Thursday in advance of the New Year’s Holiday Friday. The shortened trading week may result in some market volatility coupled with thin trading conditions likely.
LOOKING AHEAD
|
Economic |
Release |
Consensus |
|
| 2-year Treasury Note Auction |
Monday, Dec. 28, |
None | Important. $44 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates. |
| Consumer Confidence |
Tuesday, Dec. 29, |
49.5 | Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates. |
| 5-year Treasury Note Auction |
Tuesday, Dec. 29, |
None | Important. $46 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates. |
| 7-year Treasury Note Auction |
Wednesday, Dec. 30, |
None | Important. $32 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates. |
| Weekly Jobless Claims |
Thursday, Dec. 31, |
470K |
Moderately Important. An indication of employment. Higher than expected claims may help rates improve. |
| New Years Day | Friday, Jan. 1 | None | Important. Thin trading conditions and a shortened trading week could result in significant market volatility. |
Consumer Confidence Index
The Conference Board releases the Consumer Confidence Index on the last Tuesday of every month. The report details the levels of confidence individual households have in the performance of the economy. The data is derived from a survey of 5,000 households nationwide. The survey polls consumer opinions on current business conditions, their jobs, their incomes, and their future spending plans.
The consumer confidence index is significant in that it provides a precursor into consumers’ willingness to spend in the months ahead. However, many analysts point out that willingness to spend does not always convert to actual expenditures.
Despite economic uncertainty, liquidity issues, and housing market weakness, American consumers continue to spend. However, many analysts question whether consumers can continue to buoy the economy, especially amid rising unemployment and continued tight credit.
This week’s release will be eagerly anticipated. Look for any variation from estimates to cause mortgage interest rate volatility. Signs of eroding consumer confidence could lead to improvements in mortgage interest rates. However, stronger than expected figures could spike rates higher.
With mortgage interest rates relatively low, capitalizing on current levels is recommended to protect against future volatility. Remember, mortgage interest rates tend to trend lower slowly, while increases tend to occur quickly. A cautious approach is necessary to protect from future market volatility.
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Market Update 12/21/2009
Market Comment
Mortgage bond prices rose last week pushing mortgage interest rates lower. Rates initially spiked higher following higher than expected producer price index figures. Fortunately the consumer price index showed tame inflation on the consumer level and mortgage bonds were able to recover. The Fed kept rates unchanged, indicated they would try to keep rates low for some time, but also warned that long term security purchases would cease at the end of Q1 2010. For the week interest rates fell by about 3/8 of a discount point.
The inflation data will be the most important release this week. The recent inflation reports were mixed. The PCE price index will be carefully watched for any signs of inflationary pressures. The bond market will close early Thursday in advance of the Christmas holiday Friday. The shortened trading week may result in some market volatility coupled with thin trading conditions likely.
LOOKING AHEAD
|
Economic |
Release |
Consensus |
|
| Q3 GDP |
Tuesday, Dec. 22, |
Up 2.7% |
Important. The aggregate measure of US economic production. Weakness may lead to lower rates. |
| Existing Home Sales |
Tuesday, Dec. 22,
|
Up 3.3% |
Low importance. An indication of mortgage credit demand. A significant decrease may lead to lower rates. |
| Personal Income and Outlays |
Wednesday, Dec. 23, |
Up 0.5%, |
Important. A measure of consumers’ ability to spend. Weakness may lead to lower mortgage rates. |
| PCE Price Index |
Wednesday, Dec. 23, |
Up 0.5%, |
Important. A measure of inflation. Weakness may lead to lower rates. |
| U of Michigan Consumer Sentiment |
Wednesday, Dec. 23,
|
73.9 | Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates. |
| New Home Sales |
Wednesday, Dec. 23, |
Up 2.3% | Important. An indication of economic strength and credit demand. Weakness may lead to lower rates. |
| Durable Goods Orders |
Thursday, Dec. 24, |
Up 0.4% |
Important. An indication of the demand for “big ticket” items. Weakness may lead to lower rates. |
Mixed MessageThe Federal Reserve left interest rates unchanged last week as expected. The remarks were mixed and caused some mortgage market uncertainty. The Fed statement indicated, “subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period. To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve is in the process of purchasing $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt. In order to promote a smooth transition in markets, the Committee is gradually slowing the pace of these purchases, and it anticipates that these transactions will be executed by the end of the first quarter of 2010. The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets.”
The Fed’s challenge will be stepping out of the mortgage market without causing mortgage interest rates to spike uncontrollably higher. The housing sector is a vital component of the economy. The last thing the Fed needs is for mortgage interest rates to escalate causing the housing sector to suffer. While the most recent data shows positive housing trends across most of the nation, analysts attribute the positive movements to artificially low mortgage interest rates tied to the Fed buying of mortgage bonds. How this will all play out is still very uncertain. Now is a great time to take advantage of rates at these historically favorable levels.
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Market Update 12/14/2009
Market Comment
Mortgage bond prices were near unchanged last week holding mortgage rates steady. Trade was extremely volatile with swings of 1/2% in discount points common. The Treasury auctions were not as well received by foreign accounts as traders were hoping. The US relies on foreign central banks such as China to fund our deficit spending. If China were to decrease or cease purchasing US bonds and notes, rates would rise.
Interest rates finished the week near unchanged.
The inflation data will be the most important releases this week. Inflation erodes the value of fixed income securities causing prices to fall and rates to rise. The Fed meeting will also take center stage. While no rates changes are expected the wording of the release will be very important.
LOOKING AHEAD
|
Economic |
Release |
Consensus |
|
| Producer Price Index |
Tuesday, Dec. 15, |
Up 0.9%, |
Important. An indication of inflationary pressures at the producer level. Weaker figures may lead to lower rates. |
| Industrial Production |
Tuesday, Dec. 15, |
Up 0.6% | Important. A measure of manufacturing sector strength. A lower than expected increase may lead to lower rates. |
| Capacity Utilization |
Tuesday, Dec. 15, |
71.1% | Important. A figure above 85% is viewed as inflationary. A decrease may lead to lower mortgage interest rates. |
| Housing Starts |
Wednesday, Dec. 16, |
Up 8.6% | Important. A measure of housing sector strength. Weakness may lead to lower rates. |
| Consumer Price Index |
Wednesday, Dec. 16, |
Up 0.7%, |
Important. A measure of inflation at the consumer level. Lower than expected increases may lead to lower rates. |
| Fed Meeting Adjourns |
Wednesday, Dec. 16, |
No rate change | Important. Few expect the Fed to raise rates, but some volatility may surround the adjournment of this meeting. |
| Leading Economic Indicators |
Thursday, Dec. 17, |
Up 0.7% | Important. An indication of future economic activity. A smaller increase may lead to lower rates. |
| Philadelphia Fed Survey |
Thursday, Dec. 17, |
16.5 | Moderately important. A survey of business conditions in the Northeast. Weakness may lead to lower rates. |
Trading Conditions
As we all know, mortgage interest rates change on a daily and intra-day basis. With so much volatility, it is often difficult to make the right decision regarding floating or locking. What is important to remember is the fact that there is a difference between gambling and taking a calculated risk when making mortgage interest rate decisions. Floating into an economic release such as the employment report is usually a gamble, as was evident with the rate spike the beginning of this month. In addition, floating over a span of more than a few days is also a gamble. Unforeseen events can cause instability in the financial markets that results in mortgage interest rate volatility. On the contrary, floating on a day of positive market movement with no economic data the following day, while such action is still vulnerable to market movements, can be considered a calculated risk. It is possible for interest rates to push lower due to the uncertain future of the economy. Unfortunately the recent focus has been towards rate increases, which generally don’t bode well for lower mortgage interest rates. Taking advantage of rates at the current levels guarantees a historically favorable interest rate and protects against uncertainty surrounding future interest rate developments.
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Market Update 12/07/2009
Market Comment
Mortgage bond prices fell last week pushing mortgage interest rates significantly higher. We saw selling pressure almost the entire week as housing and factory orders data was stronger than expected, the Fed Chairman mentioned rate hikes, and weekly jobless claims beat estimates. To top the already negative week, the employment report came in stronger than expected causing rates to spike even higher Friday morning. Interest rates finished the week worse by about 1 and 1/2-discount points.
The continued Treasury auctions will gain a lot of attention this week. If foreign demand for the debt is weak we could see rates head higher. The first portion of the week is light regarding economic releases but the trade data Thursday and retail sales data Friday have the potential to result in mortgage interest rate volatility. Be alert throughout the entire week.
LOOKING AHEAD
|
Economic |
Release |
Consensus |
|
| Consumer Credit |
Monday, Dec. 7, |
Down $9.3 billion |
Low importance. A significantly large increase may lead to lower mortgage interest rates. |
| 3-year Treasury Note Auction |
Tuesday, Dec. 8, |
None |
Important. $40 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates. |
| 10-year Treasury Note Auction |
Wednesday, Dec. 9, |
None |
Important. $21 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates. |
| Trade Data |
Thursday, Dec. 10, |
$37.1 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, Dec. 10, |
None | Important. $13 billion of bonds will be auctioned. Strong demand may lead to lower mortgage rates. |
| Retail Sales |
Friday, Dec. 11, |
Up 0.5% | Important. A measure of consumer demand. A smaller than expected increase may lead to lower mortgage rates. |
| U of Michigan Consumer Sentiment |
Friday, Dec. 11, |
68.5% |
Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates. |
| Business Inventories |
Friday, Dec. 11, |
Down 0.2% | Low importance. An indication of stored-up capacity. A significantly large increase may lead to lower rates. |
Are Rate Hikes Coming?The biggest fear of bondholders is inflation. Real or perceived, inflation erodes the value of fixed income securities causing prices fall and rates to rise. The last thing the struggling housing sector of the economy needs is escalating mortgage interest rates. Unfortunately comments from Fed Chairman Bernanke have many traders concerned that rate hikes are on the way. Bernanke indicated the Fed would follow a “rolling exit process” in which special programs run down and ultimately implement a tightening policy. He went on to mention raising rates and indicated the Fed will cut back and close emergency lending programs as the markets normalize. The reaction to these remarks was fast and furious as mortgage interest rates shot higher.
While it is almost inevitable that the Fed will eventually raise rates, the question still remains when that process will actually start to occur. Many traders took Bernanke’s remarks as a warning of things to come sooner rather than later.
Despite the recent rate increases last week rates remain historically very favorable. Lower rates are not guaranteed and floating in this environment is very risky.
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