Mortgage news

Market Comment - Week of November 8th, 2010

Mortgage bond prices were slightly positive for the week amid very choppy trading conditions. We started on a positive note for bonds with lower than expected PCE inflation data. Unfortunately a steep sell off emerged Monday afternoon as we headed into the elections and the Fed meeting. The Fed kept rates in check Wednesday as expected and announced continued quantitative easing. Unfortunately the payrolls figure of the employment report was stronger than expected Friday morning, which erased a lot of the gains seen earlier in the week. For the week interest rates finished better by about 1/8 to 1/4.

The Treasury will auction $72 billion of securities this week. Strong foreign demand remains necessary for interest rates to stay low. The Veterans holiday Thursday splits the trading week.

Trading This Week

Market conditions that often lead to mortgage interest rate volatility are thin trading and shortened trading weeks. If very few market participants are buying and selling bonds, the potential for short-term volatility is escalated. A large buyer or seller can execute trading orders that, without additional traders to buffer out the extreme buying or selling, can lead to swift market movements. In addition, shortened trading weeks have the potential to compress a week's worth of trading into fewer days. Bond traders often take defensive positions ahead of weekends and holidays to guard against unforeseen events that could possibly jeopardize their investments. This positioning can be beneficial or detrimental to mortgage interest rates. If investors sell stocks and buy mortgage-backed securities, mortgage interest rates will improve. However, if investors sell mortgage-backed securities and hold cash positions, mortgage interest rates will rise.

Holidays can often result in volatility as trading resumes following the extended close. The Fed continues to state the goal of low interest rates for some time. It is hard to argue they have not been effective with that goal. That doesn't mean we haven't and won't see any interest rate volatility. The Fed also noted recently that inflation is below their preferred levels. Recent history attests to spikes and drops in rates throughout the year.

This week could result in market swings that are favorable or negative in nature. A cautious approach to interest rate exposure is prudent considering the heightened possibility for mortgage interest rate volatility.

WR Starkey Mortgage, LLP - A different kind of company...where people come first!

©2010 Design by WR Starkey Mortgage, LLP NMLSR #2146. This is not a guarantee of financing. All borrowers must meet certain underwriting guidelines and credit criteria. Rules and Regulations may apply. Colorado: To check the status of your mortgage loan originator, visit http://www.dora.state.co.us/real-estate/index.html