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Market Comment
Mortgage bond prices finished the week lower, putting upward pressure on mortgage interest rates. Rates were under pressure in the early part of the week as market participants prepared for the jobs reports. The Automatic Data Processing (ADP) report released Wednesday was much better than estimates and traders reacted by pushing rates higher. ADP showed the US economy added 281,000 jobs, much better than economists’ estimates for an increase of 200,000. The weakness continued Thursday morning with the release of the Bureau of Labor Statistics (BLS) monthly employment situation report that showed the addition of 288,000 jobs with an unemployment rate of 6.1%, Traders were expecting the BLS report to show 210,000 jobs with an unemployment rate of 6.3%. Mortgage interest rates rose by about 1/2 of a discount point for the trading week.
LOOKING AHEAD
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Economic
Indicator
|
Release
Date & Time
|
Consensus
Estimate
|
Analysis
|
| 3-year Treasury Note Auction |
Tuesday, July 8,
1:15 pm, et
|
None |
Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates. |
| Consumer Credit |
Tuesday, July 8,
3:00 pm, et
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$22.3b |
Low importance. A significantly large increase may lead to lower mortgage interest rates. |
| 10-year Treasury Note Auction |
Wednesday, July 9,
1:15 pm, et
|
None |
Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates. |
| Fed Minutes |
Wednesday, July 9,
2:00 pm, et
|
None |
Important. Details of the last Fed meeting will be thoroughly analyzed. |
| Weekly Jobless Claims |
Thursday, July 10,
8:30 am, et
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308k |
Important. An indication of employment. Higher claims may result in lower rates. |
| 30Y Treasury Bond Auction |
Thursday, July 10,
1:15 pm, et
|
None |
Important. Bonds will be auctioned. Strong demand may lead to lower mortgage 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 economic concerns in the euro zone. This flight to quality buying of mortgage bonds has helped push 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 bonds cause investors to require higher rates of return on investments. This compensates for the erosion of the principal that eventually is returned to them or the risk of non-performance. Regardless of inflation levels, 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. Interest rates remain historically favorable. Now is a great time to take advantage of the low rates.
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