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Mortgage Market Comments for the week of March 8th, 2010

By Mick Rothblott

Mortgage and Lending with Mortgages By Mick

March 07, 2010 11:27 PM

MARKET COMMENT

Mortgage bond prices continued to rebound higher last week, which pushedmortgage interest rates lower. Stock gains kept mortgage bonds relatively in check but many of the data releases were very bond friendly. The core PCE inflation reading was unchanged compared to the slight increase expected by analysts. Q4 revised productivity rose 6.9%, much better than expected. Higher productivity means a company can produce more with less input helping to keep prices and thus inflation in check. Rates fell about 1/8 of a discount point for the week.

Expect stocks to factor into trading the early portion of the week with very little data on tap. The Treasury auctions will be the focus throughout the middle portion of the week. Strong foreign demand would likely help mortgage bonds also. The jobless figures and retail sales data will be the focus for the end of the week.

LOOKING AHEAD

Economic Indicator	Release Date and Time	Consensus Estimate	Analysis
3-year Treasury Note Auction	Tuesday, March 9, 1:15 pm, et	None	Important. $40 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
10-year Treasury Note Auction	Wednesday, March 10, 1:15 pm, et	None	Important. $21 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
Weekly Jobless Claims	Thursday, March 11, 8:30 am, et	450k	Moderately important. An indication of the employment situation. A large increase may bring lower rates.
Trade Data	Thursday, March 11, 8:30 am, et	$40.3 billion deficit	Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates.
30-year Treasury Bond Auction	Thursday, March 11, 1:15 pm, et	None	Important. $13 billion of bonds will be auctioned. Strong demand may lead to lower mortgage rates.
Retail Sales	Friday, March, 12, 8:30 am, et	Up 0.1%	Important. A measure of consumer demand. Weakness may lead to lower mortgage rates.
U of Michigan Consumer Sentiment	Friday, March, 12, 10:00 am, et	73.6	Important. An indication of consumers' willingness to spend. Weakness may lead to lower mortgage rates.
Business Inventories	Friday, March, 12, 10:00 am, et	Up 0.2%	Low importance. An indication of stored-up capacity. A significantly larger increase may lead to lower rates.

AUCTIONS

US Treasury bonds do not directly dictate fixed mortgage interest rate pricing however they do have an indirect impact. Both Treasuries and mortgage bonds often track in the same direction but this is not always the case. There are many times that Treasuries and mortgage bonds move inversely.

Despite the overwhelming size of the US economy, foreign investors can still have an effect on moving the financial markets. When foreign economies struggle foreign investors often purchase US based investments including mortgage bonds. This demand usually causes mortgage bond prices to rise and interest rates to fall. This flight to quality buying was one of the factors that helped mortgage interest rates to remain historically low in years past.

There is a real threat that continued global economic turmoil might keep foreign investors from purchasing mortgage bonds in the future. The Treasury auctions this week will be important in determining the current appetite of foreign investors for dollar denominated securities. If this week's auctions are poorly bid mortgage bond prices could fall pressuring mortgage interest rates higher.