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Market Comment
Mortgage bond prices had another terrible week pushing mortgage interest rates considerably higher. Personal income, outlays, construction spending, ISM Index, and payrolls data came in stronger than expected. This did little to help the already shattered bond market. Oil prices continued to escalate hitting over $70/barrel. The Fed attempts to keep rates in check were not very effective as selling pressure continued. Bernanke tried to calm the markets by reiterating forecasts of tame inflation but his words fell on deaf ears among bond traders. For the week interest rates rose by about 1 and 1/2 of a discount point.
The Treasury auctions will once again take center stage, as the market has to deal with additional supply. Continued strength in the economic data will do little to help mortgage interest rates improve.
LOOKING AHEAD
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Economic
Indicator
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Release
Date & Time
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Consensus
Estimate
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Analysis
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3-year Treasury Note Auction
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Tuesday, June 9,
1:30 pm, et
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None
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Important. $35 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
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Trade Data
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Wednesday, June 10,
8:30 am, et
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$28.7 billion deficit
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Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates.
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10-year Treasury Note Auction
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Wednesday, June 10,
1:30 pm, et
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None
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Important. $19 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
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Fed "Beige Book"
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Wednesday, June 10,
2:00 pm, et
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None
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Important. This Fed report details current economic conditions across the US. Signs of weakness may lead to lower rates.
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Retail Sales
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Thursday, June 11,
8:30 am, et
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Up 0.3%
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Important. A measure of consumer demand. A smaller than expected increase may lead to lower mortgage rates.
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Business Inventories
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Thursday, June 11,
10:00 am, et
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Down 1.0%
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Low importance. An indication of stored-up capacity. A stronger figure may lead to lower rates.
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30-year Treasury Bond Auction
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Thursday, June 11,
1:30 pm, et
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None
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Important. $11 billion of bonds will be auctioned. Strong demand may lead to lower mortgage rates.
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U of Michigan Consumer Sentiment
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Friday, June 12,
10:00 am, et
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68.6
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Important. An indication of consumers' willingness to spend. Weakness may lead to lower mortgage rates.
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Payrolls
Last week was a prime example of the divergence between the unemployment rate and payrolls figure along with the risk of floating into important data. Unemployment came in at 9.4%, higher than the expected 9.2%, while non-farm payrolls fell 345,000, not as much as the expected 520,000 decline. Mortgage bond prices fell and rates spiked higher. Bond traders hoped the report would provide a solid indication that the labor market remained weak. Unfortunately it left more uncertainty. The unemployment figure is derived from a household survey while the payrolls number comes from an employer report.
Energy prices have risen considerably stoking inflation fears amid record debt levels. As a result the low mortgage interest rates that everyone considered a given have quickly gone away. The Fed continues to purchase mortgage bonds in an effort to keep mortgage interest rates low but they face a daunting task as the selling pressure continues. The Fed still has over $700b marked for purchasing additional mortgage bonds. The question remains whether that will be enough to help rates turn lower. So far it appears additional measures are needed.
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Copyright 2009. All Rights Reserved. Mortgage Market Information Services, Inc. www.ratelink.com The information contained herein is believed to be accurate, however no representation or warranties are written or implied.
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