Market Comment - Week of March 29th, 2010

Mortgage bond prices fell last week pushing mortgage interest rates considerably higher. The Treasury auctions resulted in poor foreign demand for US debt instruments. Unfortunately that carried over into the mortgage backed securities market causing prices to fall and rates to rise. The data hurt us with weekly jobless claims coming in better than expected and existing home sales also beating estimates. Durable goods orders data was mixed with ex-transportation figures considerably stronger than expected. Rates rose about 5/8 of a discount point for the week.

The PCE inflation reading Monday will set the tone for trading this week. The employment report Friday will be the most important release. The bond market will close early Friday in honor of Good Friday.


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Economic Factors

Economic Indicator
Release Date Time
Consensus Estimate
Analysis

Personal Income and Outlays
Monday, March 29, 2010
Up 0.1%, Up 0.3%
Important. A measure of consumers' ability to spend. Weakness may lead to lower mortgage rates.

PCE Prices-Core
Monday, March 29, 2010
Up 0.1%
Important. An indication of inflationary pressures at the producer level. Weakness may lead to lower rates.

Consumer Confidence
Tuesday, March 30, 2010
49.0
Important. An indication of consumers' willingness to spend. Weakness may lead to lower mortgage rates.

ADP Employment
Wednesday, March 31, 2010
Up 45k
Important. An indication of employment. Weakness in payrolls may bring lower rates.

Factory Orders
Wednesday, March 31, 2010
Up 0.5%
Important. A measure of manufacturing sector strength. Weakness may lead to lower rates.

Construction Spending
Thursday, April 1, 2010
Down 1.0%
Low importance. An indication of economic strength. A significant decrease may lead to lower rates.

ISM Index
Thursday, April 1, 2010
57.0
Important. A measure of manufacturer sentiment. Weakness may lead to lower mortgage rates.

Employment
Friday, April 2, 2010
Unemp. @ 9.7%, Payrolls +150k
Very important. An increase in unemployment or weakness in payrolls may bring lower rates.




Personal Consumption Expenditures

The personal consumption expenditures price index is a measurement of the average increase in prices for all domestic personal consumption. The Bureau of Economic Analysis creates the report. The release is the preferred measure of inflation of the Federal Reserve. The 2000 Monetary Policy Report to the Congress indicated, "the Federal Reserve Board's semiannual monetary policy reports to Congress have described the Board's outlook for inflation in terms of the PCE. Prior to that, the inflation outlook was presented in terms of the CPI." The report went on to note "the PCE chain-type index is constructed from a formula that reflects the changing composition of spending and thereby avoids some of the upward bias associated with the fixed-weight nature of the CPI. In addition, the weights are based on a more comprehensive measure of expenditures. Finally, historical data used in the PCE price index can be revised to account for newly available information and for improvements in measurement techniques, including those that affect source data from the CPI; the result is a more consistent series over time."

Be cautious heading into this release in the event signs of inflation begin to materialize.

Interest Rates Rise with the Tempature

What is a Credit Score?

Before deciding on what terms lenders will offer you on a loan (which they base on the "risk" to them), they want to know two things about you: your ability to pay back the loan, and your willingness to pay back the loan. For the first, they look at your income-to-debt obligation ratio. For your willingness to pay back the loan, they consult your credit score.
The most widely used credit scores are FICO scores, which were developed by Fair Isaac & Company, Inc. (and they're named after their inventor!). Your FICO score is between 350 (high risk) and 850 (low risk).
Credit scores only consider the information contained in your credit profile. They do not consider your income, savings, down payment amount, or demographic factors like gender, race, nationality or marital status. In fact, the fact they don't consider demographic factors is why they were invented in the first place. "Profiling" was as dirty a word when FICO scores were invented as it is now. Credit scoring was developed as a way to consider only what was relevant to somebody's willingness to repay a loan.
Past delinquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and number of inquiries are all considered in credit scores. Your score considers both positive and negative information in your credit report. Late payments will lower your score, but establishing or reestablishing a good track record of making payments on time will raise your score.
Different portions of your credit history are given different weights. Thirty-five percent of your FICO score is based on your specific payment history. Thirty percent is your current level of indebtedness. Fifteen percent each is the time your open credit has been in use (ten year old accounts are good, six month old ones aren't as good) and types of credit available to you (installment loans such as student loans, car loans, etc. versus revolving and debit accounts like credit cards). Finally, five percent is pursuit of new credit -- credit scores requested.
Your credit report must contain at least one account which has been open for six months or more, and at least one account that has been updated in the past six months for you to get a credit score. This ensures that there is enough information in your report to generate an accurate score. If you do not meet the minimum criteria for getting a score, you may need to establish a credit history prior to applying for a mortgage.

Market Comment - Week of March 22nd, 2010

Mortgage bond prices rose last week helping mortgage interest rates improve slightly. We started the week on a positive note with rates falling amid tame inflation readings. The producer price index fell 0.6% and the core rose 0.1%. The headline figure was the lowest since July 2009. Weekly jobless claims showed the employment situation remained poor. Unfortunately we saw the market fall a bit pushing rates higher Thursday afternoon following the announcement of the size of the upcoming Treasury auctions and amid fear of future rate hikes. Rates fell about 1/8 of a discount point for the week.

The durable goods and gross domestic product data will be the most important releases this week. Supply concerns will continue to weigh heavily upon the bond market with the continued record Treasury auctions. If foreign demand falters mortgage interest rates could be pressured higher.


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Economic Factors

Economic Indicator
Release Date Time
Consensus Estimate
Analysis

Existing Home Sales
Tuesday, March 23, 2010
Down 0.9%
Low importance. An indication of mortgage credit demand. A significant decrease may lead to lower rates.

2-year Treasury Note Auction
Tuesday, March 23, 2010
None
Important. $44 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.

Durable Goods Orders
Wednesday, March 24, 2010
Up 0.5%
Important. An indication of the demand for "big ticket" items. Weakness may lead to lower rates.

New Home Sales
Wednesday, March 24, 2010
Up 1.5%
Important. An indication of economic strength and credit demand. Weakness may lead to lower rates.

5-year Treasury Note Auction
Wednesday, March 24, 2010
None
Important. $42 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.

7-year Treasury Note Auction
Thursday, March 25, 2010
None
Important. $32 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.

Q4 GDP third estimate
Friday, March 26, 2010
Up 5.8%
Important. The aggregate measure of US economic production. Weakness may lead to lower rates.

U of Michigan Consumer Sentiment
Friday, March 26, 2010
71
Important. An indication of consumers' willingness to spend. Weakness may lead to lower mortgage rates.




Gross Domestic Product

The Gross Domestic Product (GDP) is one the most important reports during any given quarter. GDP is a measure of US economic output and spending. The report is significant in that it provides investors, analysts, traders, and economists with a comprehensive report of the direction of the economy. In addition, it also influences the decisions of Federal Reserve policy makers, Congressional budget employees, and corporate financial planners.

GDP is the sum total of goods and services produced by the United States. The initial report is often based on incomplete data. Therefore, additional revisions are released over the following two months. There are often substantial differences between the initial release and the revisions. The mortgage-backed security market generally responds favorably to weaker GDP growth.

While revisions generally don't move the market like the original release, they still have the potential to cause market volatility if vastly different from the prior releases. Be cautious heading into the data this week.

Market Comment - Week of March 15th, 2010

Mortgage bond prices fell last week applying slight upward pressure on home loan rates. The market remained very volatile within a narrow range. With the lack of data the first portion of the week, oil prices factored into trading. Oil remained above $80 a barrel, which reignited inflation concerns. The retail sales report released Friday was much stronger than expected, indicating the US economy may be getting stronger.

Rates rose about 1/8 of a discount point for the week.

The Fed meeting Tuesday afternoon will be the most important event this week. The inflation data from both the consumer and producer sides will also take center stage. Signs of inflation are generally not received well by the mortgage bond market. If inflation remains in check, mortgage bonds could benefit.


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Economic Factors

Economic Indicator
Release Date Time
Consensus Estimate
Analysis

Industrial Production
Monday, March 15, 2010
Up 0.1%
Important. A measure of manufacturing sector strength. Weakness may lead to lower rates.

Capacity Utilization
Monday, March 15, 2010
72.3%
Important. A figure above 85% is viewed as inflationary. A decrease may lead to lower mortgage interest rates.

Housing Starts
Tuesday, March 16, 2010
Down 0.6%
Important. A measure of housing sector strength. A larger than expected decrease may lead to lower rates.

Fed Meeting Adjourns
Tuesday, March 16, 2010
No change
Important. Few expect the Fed to raise rates, but some volatility may surround the adjournment of this meeting.

Producer Price Index
Wednesday, March 17, 2010
Unchanged, Core up 0.1%
Important. An indication of inflationary pressures at the producer level. Decreases may lead to lower rates.

Consumer Price Index
Thursday, March 18, 2010
Unchanged, Core up 0.1%
Important. A measure of inflation at the consumer level. Lower than expected increases may lead to lower rates.

Leading Economic Indicators
Thursday, March 18, 2010
Up 0.2%
Important. An indication of future economic activity. A smaller increase may lead to lower rates.

Philadelphia Fed Survey
Thursday, March 18, 2010
17.5
Moderately important. A survey of business conditions in the Northeast. Weakness may lead to lower rates.




Producer Price Index

The producer price index is a measure of prices at the producer level and is important because it is the first inflation report to be released each month. Investors are typically able to gain an initial indication of inflationary pressures from the release. If producer prices are increasing, there is a tendency for producers to pass the increases on to consumers in the form of higher priced goods. It is important to note that the PPI is only a measure of goods, while the consumer price index is a measure of goods and services. It is possible for the price of goods to remain stable, while the price of services increases. In this scenario PPI would do little to warn of a change in inflationary pressures, while the CPI report would provide an indication of the inflationary effects of the service component. This distinction between the two reports shows why most analysts view the CPI as a more accurate indicator of inflation. Nevertheless, market participants still gain valuable insight into potential volatility in the financial markets from the PPI release.

Be cautious heading into the inflation data and Fed meeting this week.

Rock 'n Roll 1/2 Marathon

I thought I would share with you Glenn’s latest accomplishment! Yesterday he completed a ½ marathon! This is something Glenn has wanted to do for some time. So in January, he decided to start training for the Rock 'n' Roll Dallas Half Marathon. Since beginning his training, Glenn has been truly dedicated to succeeding. He has run in the snow, rain, fog, and freezing cold temperatures, never once backing down from his training to ensure he reached his goal! Glenn finished yesterday's event with a personal best time.


What's next for Glenn? Keep reading to find out...

Congratulations!!

Jenni

Remember To Spring Forward, Sunday March 14th

One of the biggest reasons we change our clocks to Daylight Saving Time (DST) is that it reportedly saves electricity. Newer studies are being done to see if that long-held reason is true.

In general, energy use and the demand for electricity for lighting our homes is directly connected to when we go to bed and when we get up. Bedtime for most of us is late evening through the year. When we go to bed, we turn off the lights and TV.

In the average home, 25 percent of all the electricity we use is for lighting and small appliances, such as TVs, VCRs and stereos. A good percentage of energy consumed by lighting and appliances occurs in the evening when families are home. By moving the clock ahead one hour, we can cut the amount of electricity we consume each day.

Studies done in the 1970s by the U.S. Department of Transportation show that we trim the entire country's electricity usage by about one percent EACH DAY with Daylight Saving Time.

Daylight Saving Time "makes" the sun "set" one hour later and therefore reduces the period between sunset and bedtime by one hour. This means that less electricity would be used for lighting and appliances late in the day. We may use a bit more electricity in the morning because it is darker when we rise, but that is usually offset by the energy savings in the evening.

We also use less electricity because we are home fewer hours during the "longer" days of spring and summer. Most people plan outdoor activities in the extra daylight hours. When we are not at home, we don't turn on the appliances and lights. A poll done by the U.S. Department of Transportation indicated that Americans liked Daylight Saving Time because "there is more light in the evenings / can do more in the evenings."

While the amounts of electricity saved per household are small...added up they can be very large.

In the winter, the afternoon Daylight Saving Time advantage is offset by the morning's need for more lighting. In spring and fall, the advantage is less than one hour. So, Daylight Saving Time saves energy for lighting in all seasons of the year except for the four darkest months of the year (November, December, January and February) when the afternoon advantage is offset by the need for lighting because of late sunrise.

Market Comment - Week of March 8th, 2010
Mortgage bond prices continued to rebound higher last week, which pushed mortgage 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.
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Economic Factors
Economic Indicator Release Date Time Consensus Estimate Analysis
3-year Treasury Note Auction Tuesday, March 9, 2010 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, 2010 None Important. $21 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
Weekly Jobless Claims Thursday, March 11, 2010 450k Moderately important. An indication of the employment situation. A large increase may bring lower rates.
Trade Data Thursday, March 11, 2010 $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, 2010 None Important. $13 billion of bonds will be auctioned. Strong demand may lead to lower mortgage rates.
Retail Sales Friday, March, 12, 2010 Up 0.1% Important. A measure of consumer demand. Weakness may lead to lower mortgage rates.
U of Michigan Consumer Sentiment Friday, March, 12, 2010 73.6 Important. 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. 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.