Mortgage Market in Review 2009

Stock Financial

Market Comment
Mortgage bond prices fell last week pushing mortgage interest rates significantly higher. We saw selling pressure almost the entire week as housing and factory orders data was stronger than expected, the Fed Chairman mentioned rate hikes, and weekly jobless claims beat estimates. To top the already negative week, the employment report came in stronger than expected causing rates to spike even higher Friday morning. Interest rates finished the week worse by about 1 and 1/2-discount points.

The continued Treasury auctions will gain a lot of attention this week. If foreign demand for the debt is weak we could see rates head higher. The first portion of the week is light regarding economic releases but the trade data Thursday and retail sales data Friday have the potential to result in mortgage interest rate volatility. Be alert throughout the entire week.

LOOKING AHEAD

Economic
Indicator

Release
Date & Time

Consensus
Estimate


Analysis

Consumer Credit

Monday, Dec. 7,
2:00 pm, et

Down $9.3 billion

Low importance. A significantly large increase may lead to lower mortgage interest rates.

3-year Treasury Note Auction

Tuesday, Dec. 8,
1:00 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, Dec. 9,
1:00 pm, et

None

Important. $21 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.

Trade Data

Thursday, Dec. 10,
8:30 am, et

$37.1 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, Dec. 10,
1:00 pm, et

None

Important. $13 billion of bonds will be auctioned. Strong demand may lead to lower mortgage rates.

Retail Sales

Friday, Dec. 11,
8:30 am, et

Up 0.5%

Important. A measure of consumer demand. A smaller than expected increase may lead to lower mortgage rates.

U of Michigan Consumer Sentiment

Friday, Dec. 11,
10:00 am, et

68.5%

Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.

Business Inventories

Friday, Dec. 11,
10:00 am, et

Down 0.2%

Low importance. An indication of stored-up capacity. A significantly large increase may lead to lower rates.

Are Rate Hikes Coming?

The biggest fear of bondholders is inflation. Real or perceived, inflation erodes the value of fixed income securities causing prices fall and rates to rise. The last thing the struggling housing sector of the economy needs is escalating mortgage interest rates. Unfortunately comments from Fed Chairman Bernanke have many traders concerned that rate hikes are on the way. Bernanke indicated the Fed would follow a "rolling exit process" in which special programs run down and ultimately implement a tightening policy. He went on to mention raising rates and indicated the Fed will cut back and close emergency lending programs as the markets normalize. The reaction to these remarks was fast and furious as mortgage interest rates shot higher.

While it is almost inevitable that the Fed will eventually raise rates, the question still remains when that process will actually start to occur. Many traders took Bernanke’s remarks as a warning of things to come sooner rather than later.

Despite the recent rate increases last week rates remain historically very favorable. Lower rates are not guaranteed and floating in this environment is very risky.

About the Author:

Jay P. Civetti
DIRECTOR of SALES & MARKETING
STOCK FINANCIAL LLC
2647 Professional Circle
Naples, FL 34119
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