Mortgage bond prices finished the week near unchanged holding mortgage rates steady. Rates rose Monday amid stock strength as the DOW was up over 200 points. Rates fell Tuesday when stocks reversed course. The biggest shock to financial markets came early in the week with the devaluing of the Chinese Yuan. The Bank of China allowed the yuan to depreciate by 1.9% against the US dollar on Tuesday. Global stock markets sank on the news and traders purchased bonds pushing mortgage rates lower. Trade was volatile, a trend that is likely to continue. Mortgage interest rates finished the week better by about 1/8 of a discount point.
Consumer Price Index
The Consumer Price Index is widely accepted as the most important measure of inflation which is due out on Wednesday the 19th. The CPI is a measure of prices at the consumer level for a fixed basket of goods and services. The National Statistics Office and the Bureau of Agricultural Statistics of the Department of Agriculture collect price data for the computation of the CPI. Since it is an index number, it compares the level of prices to a base period. By comparing the level of the index at two different points in time, analysts can determine how much prices have risen in that period.
Unlike other measures of inflation, which only factor domestically produced goods; the CPI takes into account imported goods as well. This is important due to the ever-increasing reliance of the US economy upon imported goods.
Analysts primarily focus on the core rate of the CPI which factors out the more volatile food and energy prices. Oil prices are always a concern from an inflation perspective. Inflation, real or perceived, erodes the value of fixed income securities such as mortgage bonds. Rates have a better chance of falling with lower than expected CPI figures.
Comments(1)