Monday, February 6, 2012

Market Update

Today finds me heading to Bullitt County for an appraisal, but I wanted to share this with you all before heading out the door.  Keep in mind that we are in a global economy, and we have been for several hundred years.  Thanks again to Josh Hay and US Bank for providing this market update.


MARKET COMMENT
Mortgage bond prices were only slightly higher last week, which kept mortgage interest rates in check. There were rate improvements throughout the middle of the week tied to weaker than expected ADP employment figures. Unfortunately, a lot of those gains were erased Friday morning with the release of the employment report. Unemployment came in @ 8.3% which was better than the expected 8.5% mark. Payrolls increased 243k, which was considerably stronger than the expected 155k increase. Stocks rallied and MBS prices fell as a result. Mortgage bonds ended the week unchanged to better by 1/8 of a discount point despite the strong negative movement Friday.
LOOKING AHEAD
Economic
Indicator
Release
Date and Time
Consensus
Estimate
Analysis
3-year Treasury Note AuctionTuesday,
Feb. 7,
1:15 pm, et
NoneImportant. Notes will be auctioned. Strong demand may lead to lower mortgage rates.
Consumer CreditTuesday,
Feb. 7,
3:00 pm, et
$9.56bLow importance. A significantly large increase may lead to lower mortgage interest rates.
10-year Treasury Note AuctionWednesday,
Feb. 8,
1:15 pm, et
NoneImportant. Notes will be auctioned. Strong demand may lead to lower mortgage rates.
Weekly Jobless ClaimsThursday,
Feb. 9,
8:30 am, et
375kImportant. An indication of employment. Higher claims may result in lower rates.
30-year Treasury Bond AuctionThursday,
Feb 9,
1:15 pm, et
NoneImportant. Bonds will be auctioned. Strong demand may lead to lower mortgage rates.
Trade DataFriday,
Feb. 10,
8:30 am, et
$45b deficitImportant. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates.
U of Michigan Consumer SentimentFriday,
Feb. 10,
10:00 am, et
60.5Important. An indication of consumers' willingness to spend. Weakness may lead to lower mortgage rates.
AUCTIONS
US Treasury bonds do not directly dictate fixed mortgage interest rate pricing however they do have an indirect impact. Treasuries are used as a hedge for the interest rate risk associated with mortgage-backed security investing. Mortgage-backed securities have the potential for prepayment that Treasuries do not. 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 is one of the factors helping mortgage interest rates remain historically low.
The Fed recently noted that continued global economic turmoil will be a factor in the health of the US economy. How that all plays out is still uncertain.
The Treasury auctions this week will be important in determining the current appetite of foreign investors for dollar denominated debt securities. Demand has been generally good as of late but auctions of different durations often vary in their results. Mortgage bond prices could fall pressuring mortgage interest rates higher if the auctions this week are poorly bid. The inverse is also true. Be alert heading into the auctions.

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