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Market Comment
Mortgage bond prices finished the week lower, which pushed mortgage rates higher.The economic data was mixed.The employment report released Friday showed the US economy added 163K jobs however the unemployment rate rose to 8.3%.The Federal Reserve did not make any changes at this week’s meeting, indicated a desire to keep rates low through 2014, and said they would continue to monitor the economy while they remained prepared to act as needed.Stocks and bonds were slightly negative after the release.MBS prices continued to benefit from euro zone trouble as flight to quality buying of U.S. debt continued.U.S. mortgage interest rates finished the week worse by about 1/8 of a discount point.
LOOKING AHEAD
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Economic
Indicator
|
Release
Date & Time
|
Consensus
Estimate
|
Analysis
|
| 3-year Treasury Note Auction |
Tuesday, Aug. 7,
1:15 pm, et
|
None |
Important.Notes will be auctioned.Strong demand may lead to lower mortgage rates. |
| Consumer Credit |
Tuesday, Aug. 7,
3:00 pm, et
|
$14.4b |
Low importance.A significantly large increase may lead to lower mortgage interest rates. |
| Preliminary Q2 Productivity |
Wednesday, Aug. 8,
8:30 am, et
|
Up 0.1% |
Important.A measure of output per hour.Improvement may lead to lower mortgage rates. |
| 10-year Treasury Note Auction |
Wednesday, Aug. 8,
1:15 pm, et
|
None |
Important.Notes will be auctioned.Strong demand may lead to lower mortgage rates. |
| Weekly Jobless Claims |
Thursday, Aug. 9,
8:30 am, et
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368k |
Important.An indication of employment.Higher claims may result in lower rates. |
| 30-year Treasury Bond Auction |
Thursday, Aug. 9,
1:15 pm, et
|
None |
Important.Bonds will be auctioned.Strong demand may lead to lower mortgage rates. |
| Trade Data |
Thursday, Aug. 9,
8:30 am, et
|
$46b deficit |
Important.Affects the value of the dollar.A falling deficit may strengthen the dollar and lead to lower rates. |
Credit Demand
Inflation is typically the most important focus for the mortgage interest rate market.Most of the recent increases in interest rates have come following stronger stocks.As stocks struggle we often see rates improve.In addition, mortgage bonds have benefited from global economic uncertainty as investors search for safe havens amid sovereign debt concerns in the euro zone.This flight to quality buying of mortgage bonds has pushed prices higher and mortgage interest rates lower.
The level of interest rates reflects the balance between the supply of money from investors and the demand for money by borrowers.Rising inflationary expectations and uncertainty about the performance of the debt cause investors to require higher rates of return on investments to compensate for the erosion of the principal that eventually is returned to them or the risk of non-performance.Regardless of inflation levels, though, rising economic activity can increase the demand for investors’ funds, and thereby lead to higher interest rates.Investors pulling money out of bonds and into stocks could pressure mortgage rates. The demand for money diminishes as the economy struggles.The Fed lowers interest rates as an incentive to businesses and consumers to increase their borrowings.The Fed hopes manufacturers will increase their investments in plants, equipment and inventories and that consumers will push housing construction along with consumer spending and with that, consumer debt.
Analysts will monitor this week’s consumer credit levels.There is much debate in the financial community about the future.Economists, market analysts, and traders all seem to have different opinions about the future.One thing most market participants agree on is both the bond and stock markets are going to see additional volatility.
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