The Mortgage Market Watch for the Week of November 9, 2009
Events Affecting the Mortgage Market This Week:
There are three Treasury Note and Bond auctions this week that may influence mortgage rates - $40 billion in 3-Year Notes on Monday, $25 billion in 10-Year Notes on Tuesday, and $16 billion in 30-year Bonds on Thursday. The 10-year sale is the more important one as it will provide us with an indication for demand of mortgage backed securities. If the Treasury auctions are met with a strong demand from investors, we should see higher prices for mortgage backed securities and lower mortgage interest rates. However, if we see a lackluster demand, we should see lower prices for mortgage backed securities and higher mortgage interest rates.
Economic Reports to be Released This Week:
There are only two economic reports scheduled for release this week, but neither of them is considered to be highly important to the mortgage market.
Monday, November 9th:
- There are no economic reports scheduled for release today.
Tuesday, November 10th:
- There are no economic reports scheduled for release today.
Wednesday, November 11th:
- There are no economic reports scheduled for release today.
- The stock and bond markets are closed in observance of Veterans Day.
Thursday, November 12th:
- There are no economic reports scheduled for release today.
- Jobless Claims - New claims for unemployment are tabulated each week to show the number of individuals who filed for unemployment insurance for the first time. Analysts are predicting that 512,000 new claims for unemployment will have been filed last week. With a decreasing trend in the filing of new claims for unemployment, this suggests that the labor market is improving. However, this data is usually not considered to be very important to the mortgage market.
- Fed's MBS Purchase Program - The results of this week's purchases of mortgage backed securities by the Feds will be released in the afternoon. As of last Thursday, the Feds have purchased over $993 billion in mortgage backed securities this year. The Feds plan on purchasing up to $1.25 trillion in mortgage backed securities through March 31st.
Friday, November 13th:
- Goods and Services Trade Balance Report for September - This report provides a measure of the size of the U.S. trade deficit. While the report affects the value of the U.S. dollar, it's usually is not a major influence on the mortgage market or mortgage interest rates.
- Preliminary Reading of the University of Michigan's Index of Consumer Sentiment for November - This index measures consumer sentiment, which provides us with an indication of the consumer's willingness to spend. Because consumer spending makes up two-thirds of the U.S. economy, any related data is watched closely. The index is expected to show a reading of 71.0, up from the final reading of 70.6 for October. A rising sentiment means consumers are more optimistic about their own financial situations and are more likely to make large purchases in the near future. That could potentially drive prices of mortgage backed securities down and mortgage interest rates up.
How do Economic Data Releases Affect Mortgage Interest Rates?
One of the most important things for you to know when deciding when to lock in the interest rate on your mortgage is knowing what economic data is going to be released - and when - and how it may impact the mortgage market and mortgage interest rates.
While an in depth review of an economic event can help you make an informed decision, understanding the nuances of a release can't help you if you don't know when it's happening. Economic data releases are important because they provide a snapshot of what's happening in the economy. They also provide a foreshadowing of any upcoming market volatility. It's just as important to know when these data releases are happening as knowing what effect these releases can have on the mortgage market.
The chart below shows the price trend of the FNMA 30-Year 4.5% coupon over the past 30 days:
Recent Activity in Mortgage Backed Securities:
Remember - as the prices of mortgage backed securities goes up, the yields come down - and mortgage interest rates come down with it. Conversely, as the prices of mortgage backed securities goes down, the yields go up - and so do mortgage interest rates.
Mortgage Interest Rate Outlook:
Low to Moderate Volatility. Overall, because of the lack of economic reports this week, the Treasury auctions and the stock markets will most likely be the dominant influence on the trading of mortgage backed securities. If the stock markets rally this week, we will probably see funds shift from mortgage backed securities and into stocks. That will drive prices of mortgage backed securities downward and lead to rising mortgage interest rates. If, on the other hand, stocks fall from current levels, that would make mortgage backed securities more attractive to investors and lead to lower mortgage interest rates.
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