Market Report
MARKET COMMENT
Mortgage bond prices fell last week pushing mortgage interest rates higher. The first portion of the week had very little data. Leading economic indictors came in stronger than expected which really didn’t help us. Strong stocks pressured mortgage bonds a bit. Producer prices rose more than expected but the core rate was tame. New home sales shocked the market with a 26.9% increase. This was the largest increase in 47 years and not bond friendly.
Rates rose by about 3/8 of a discount point for the week.
The Fed meeting Wednesday will be the most important event this week. The Treasury auctions will also likely overshadow a lot of the other releases as traders digest record debt that continues to hit the market. Friday morning may be volatile as the employment cost index and gross domestic product data are very important releases.
LOOKING AHEAD
| Economic Indicator |
Release Date and Time |
Consensus Estimate |
Analysis |
| Consumer Confidence | Tuesday, April 27, 10:00 am, et |
54.0 | Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates. |
| 2-year Treasury Note Auction | Tuesday, April 27, 1:15 pm, et |
None | Important. $44 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates. |
| 5-year Treasury Note Auction | Wednesday, April 28, 1:15 pm, et |
None | Important. $42 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates. |
| Fed Meeting Adjourns | Wednesday, April 28, 2:15 pm, et |
No change | Important. Few expect the Fed to change rates, but some volatility may surround the adjournment of this meeting. |
| Weekly Jobless Claims | Thursday, April 29, 8:30 am, et |
455k | Moderately important. An indication of employment. A larger figure may lead to lower rates. |
| 7-year Treasury Note Auction | Thursday, April 29, 1:15 pm, et |
None | Important. $32 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates. |
| Q1 Advance GDP | Friday, April 30, 8:30 am, et |
3.5% | Very important. The aggregate measure of US economic production. Weakness may lead to lower rates. |
| Q1 Employment Cost Index | Friday, April 30, 8:30 am, et |
Up 0.4% | Very important. A measure of wage inflation. Weakness may lead to lower rates. |
| U of Michigan Consumer Sentiment | Friday, April 30, 10:00 am, et |
72 | Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates. |
CONSUMER CONFIDENCE
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.
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.
Home Sales Rise on Home Buyer Tax Credit and Favorable Market
Existing-Home Sales Rise on Home Buyer Tax Credit and Favorable Market Conditions |
| Buyers responding to the homebuyer tax credit and favorable affordability conditions boosted existing-home sales in March, marking the beginning of an expected spring surge, according to the latest report . Existing-home sales rose 6.8 percent to a seasonally adjusted annual rate of 5.35 million units in March from 5.01 million in February, and are 16.1 percent above the 4.61 million-unit level in March 2009. Lawrence Yun, NAR chief economist, said it is encouraging to see a broad home sales recovery in nearly every part of the country, with two important underlying trends. “Sales have been above year-ago levels for nine straight months, and inventory has trended down from year-ago levels for 20 months running,” he said. “The home buyer tax credit has been a resounding success as these underlying trends point to a broad stabilization in home prices. This is preserving perhaps $1 trillion in largely middle class housing wealth that may have been wiped out without the housing stimulus measure.” |
Existing Home Sales Rise on Home Buyer Tax Credit
Existing-Home Sales Rise on Home Buyer Tax Credit and Favorable Market Conditions
WASHINGTON (April 22, 2010) – Existing-home sales declined slightly in February, with modest gains in the Northeast and Midwest offset by softer sales in the South and West, according to the National Association of Realtors®.Buyers responding to the homebuyer tax credit and favorable affordability conditions boosted existing-home sales in March, marking the beginning of an expected spring surge, according to the National Association of Realtors®.
Market Report
MARKET COMMENT
Mortgage bond prices rose last week, which helped mortgage interest rates improve slightly. The first portion of the week was generally bond friendly as the Fed minutes showed real concern about the economy’s ability to recover with so many job losses. Stocks and bonds generally traded inversely as the DOW tested the 11,000 mark a few times during the week in up and down trading. Unfortunately a large portion of the improvements was erased as oil prices traded around $87/barrel and inflation fears emerged. Despite this, rates still managed to improve by about 1/4 of a discount point for the week.
The consumer price index Wednesday will be the most important release this week. The abundance of important economic releases has the potential to result in a very volatile week for mortgage interest rates. If the data shows signs of weakness we could see rates improve.
LOOKING AHEAD
| Economic Indicator |
Release Date and Time |
Consensus Estimate |
Analysis |
| Trade Data | Tuesday, April 13, 8:30 am, et |
$38 billion | Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates. |
| Consumer Price Index | Wednesday, April 14, 8:30 am, et |
Up 0.1%, Core up 0.1% |
Important. A measure of inflation at the consumer level. Weaker figures may lead to lower rates. |
| Retail Sales | Wednesday, April 14, 8:30 am, et |
Up 0.2% | Important. A measure of consumer demand. A smaller than expected increase may lead to lower mortgage rates. |
| Business Inventories | Wednesday, April 14, 10:00 am, et |
Up 0.1% | Low importance. An indication of stored-up capacity. A significantly larger increase may lead to lower rates. |
| Fed “Beige Book” | Wednesday, April 14, 2:00 pm, et |
None | Important. This Fed report details current economic conditions across the US. Signs of weakness may lead to lower rates. |
| Industrial Production | Thursday, April 15, 9:15 am, et |
Up 0.2% | Important. A measure of manufacturing sector strength. A lower than expected increase may lead to lower rates. |
| Capacity Utilization | Thursday, April 15, 9:15 am, et |
72.5% | Important. A figure above 85% is viewed as inflationary. Weakness may lead to lower rates. |
| Philadelphia Fed Survey | Thursday, April 15, 10:00 am, et |
18.1 | Moderately important. A survey of business conditions in the Northeast. Weakness may lead to lower rates. |
| Housing Starts | Friday, April 16, 8:30 am, et |
Down 2.1% | Important. A measure of housing sector strength. Larger than expected decreases may lead to lower rates. |
| U of Michigan Consumer Sentiment | Friday, April 16, 10:00 am, et |
72.9 | Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates. |
OIL
Inflation fears tied to rising energy prices have reemerged. At one point oil prices rose near $87/barrel last week causing many analysts to revise forecasts. Goldman Sachs and Morgan Stanley both predict oil prices will rise above $100/barrel next year. The concern is that rising energy costs could permeate through the markets and damage economies around the globe that are struggling to regain footing. Inflation, real or perceived, generally erodes the value of fixed income securities causing prices to fall and rates to rise. This could pressure mortgage interest rates higher further stifling a recovery in the US housing sector.
Weekly Market Report
MARKET COMMENT
Mortgage bond prices fell again last week pushing mortgage interest rates higher. The Fed ended the mortgage backed securities purchase program last Wednesday. There was no coincidence that rates spiked higher Thursday morning with the Fed no longer there to buffer negative movements and keep rates in check. Stock strength also pressured bonds as the Dow approached the 11,000 mark. Escalating oil prices also caused rates to spike higher as inflation fears begin to increase. Fortunately the PCE Price Index data came in as expected. Rates rose about 3/4 of a discount point for the week.
The Treasury auctions will once again take center stage this week. If foreign demand is lackluster like the last few auctions we could see that carry over to the mortgage bond market causing rates to spike. The Fed minutes and weekly jobless claims may also move the market this week.
LOOKING AHEAD
| Economic Indicator |
Release Date and Time |
Consensus Estimate |
Analysis |
| 3-year Treasury Note Auction | Tuesday, April 6, 1:15 pm, et |
None | Important. $40 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates. |
| Fed Minutes | Tuesday, April 6, 2:00 pm, et |
None | Important. Details of last Fed meeting. Volatility may surround the release. |
| Consumer Credit | Wednesday, April 7, 8:30 am, et |
Up $1.6 billion | Low importance. A significantly larger than expected increase may lead to lower mortgage interest rates. |
| 10-year Treasury Note Auction | Wednesday, April 7, 1:15 pm, et |
None | Important. $21 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates. |
| Weekly Jobless Claims | Thursday, April 8, 8:30 am, et |
430k | Moderately Important. An indication unemployment. Higher claims may lead to lower rates. |
| 30-year Treasury Bond Auction | Thursday, April 8, 1:15 pm, et |
None | Important. $13 billion of bonds will be auctioned. Strong demand may lead to lower mortgage rates. |
TREASURIES
The 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 (MBSs) differ. Treasury securities represent money needed to fund the operations of the US government. MBSs, on the other hand, represent borrowing by homeowners. Demand for mortgage credit is seasonal and is also affected by the state of the overall economy. In terms of demand, Treasury securities are regarded as “risk free” investments, and often benefit from a “flight to quality” in times of financial crisis. Treasury bill, note, and bond prices are dictated by yield requirements and inflationary concerns. Because homeowners can sell or refinance their homes, investors in 30-year mortgage-backed securities usually see principal repayment in significantly shorter periods of time.
In the absence of information directly related to the mortgage interest rate markets, Treasury information can be useful. However, mortgage interest rates can vary significantly. In fact, many times the Treasuries will trade wildly while MBSs only see minor price changes and vice versa.