Rates Lower After Strong Auction Demand

Rates Lower After Strong Auction Demand

Although this week's economic data was generally stronger than expected, it was overshadowed by solid demand for the Treasury auctions and intensified concerns about the economic situation in Greece, which helped mortgage markets. After reaching the highest levels since August, mortgage rates ended a little lower than where they ended last week.

Recent increases in yields on long-term fixed-rate securities such as 10-yr Treasuries and mortgage-backed securities (MBS) appeared to have been sufficient to attract investors. Very strong demand from both foreign and domestic investors for Wednesday's 10-yr auction pushed Treasury yields lower, and mortgage rates followed. Increasing the appeal, renewed worries about the fiscal situation in Greece caused investors to seek the safety of US securities. Comforting statements from Fed officials that they expect inflation to remain low for a long time also added to the demand.

In the housing sector, February Pending Home Sales jumped 8% from January, far exceeding the consensus forecast. Pending Home Sales are a leading indicator of housing market activity. The chief economist of the National Association of Realtors (NAR) considered the data to be a potential sign of a "second surge of home sales this spring". To receive the homebuyer tax credit, contracts must be signed by the end of April, which likely boosted the results for February. As buyers seek to take advantage of the program, March and April pending sales may show strength as well.

Week Ahead

The most significant economic data next week will be Wednesday's Consumer Price Index (CPI), the most closely watched monthly inflation report. CPI looks at the price change for those finished goods which are sold to consumers. The Retail Sales report will also come out on Wednesday. Retail Sales account for about 70% of economic activity. Industrial Production, another important indicator of economic activity, will be released on Thursday. Housing Starts are scheduled for Friday. The Beige Book, Import Prices, the Trade Balance, Consumer Sentiment, and Philly Fed will round out a busy week.