Market Update 01/11/2010
Market Comment
Mortgage bond prices rose last week pushing mortgage interest rates lower. The bond market was buoyed by the announcement that US Treasury increased the credit lines of Fannie Mae and Freddie Mac a total of $400 billion. This was a signal to investors that those entities are “too big to fail” as viewed by the Treasury. We saw some weakness Thursday afternoon as retailers reported stronger than expected holiday sales. The employment report Friday was generally bond friendly. For the week interest rates fell by about 1/4 of a discount point.
The inflation data Friday will be the most important economic data this week. Signs of stronger than expected inflation would not be good for mortgage interest rates. The Treasury auctions will also dominate trading. Stronger than normal foreign demand could bode well for the overall level of interest rates. Weaker than expected bids would likely result in interest rate increases.
LOOKING AHEAD
|
Economic |
Release |
Consensus |
|
| Trade Data |
Tuesday, Jan. 12, |
$34.8 billion deficit | Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates. |
| 3-year Treasury Note Auction |
Tuesday, Jan. 12, |
None | Important. $40 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates. |
| Fed “Beige Book” | Wednesday, Jan 13, Â 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, Jan. 13, |
None | Important. $21 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates. |
| Retail Sales |
Thursday, Jan. 14, |
Up 0.4% | Important. A measure of consumer demand. A smaller than expected increase may lead to lower mortgage rates. |
| 30-year Treasury Bond Auction |
Thursday, Jan. 14, |
None | Important. $13 billion of bonds will be auctioned. Strong demand may lead to lower mortgage rates. |
| Consumer Price Index |
Friday, Jan. 15, |
Up 0.2%, |
Important. A measure of inflation at the consumer level. Weaker figures may lead to lower rates. |
| Industrial Production |
Friday, Jan. 15, |
Up 0.6% | Important. A measure of manufacturing sector strength. A lower than expected increase may lead to lower rates. |
| Capacity Utilization |
Friday, Jan. 15, |
71.8% | Important. A figure above 85% is viewed as inflationary. Weakness lower mortgage interest rates. |
| U of Michigan Consumer Sentiment |
Friday, Jan. 15, |
73.8 | Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates. |
Employment Results
The December employment report came in relatively bond friendly. Unemployment came in at 10% as expected. However the payrolls component showed job losses of 85,000 compared to the 35,000 losses expected by analysts. The mortgage bond market had a generally positive reaction to the report but improvements in rates were tempered by concerns for some of the revised data from prior months. Revisions to the November figures showed a 4000-job increase as opposed to the original 11,000-job decrease.
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