Friday, April 30, 2010
Monday, April 26, 2010
Market Comment - Week of April 26th, 2010
Mortgage bond prices fell last week pushing mortgage interest rates higher. The first portion of the week had very little data. Leading economic indictors came in stronger than expected which really didn't help us. Strong stocks pressured mortgage bonds a bit. Producer prices rose more than expected but the core rate was tame. New home sales shocked the market with a 26.9% increase. This was the largest increase in 47 years and not bond friendly. Rates rose by about 3/8 of a discount point for the week.
The Fed meeting Wednesday will be the most important event this week. The Treasury auctions will also likely overshadow a lot of the other releases as traders digest record debt that continues to hit the market. Friday morning may be volatile as the employment cost index and gross domestic product data are very important releases.
--------------------------------------------------------------------------------
Economic Factors
Economic Indicator
Release Date Time
Consensus Estimate
Analysis
Consumer Confidence
Tuesday, April 27, 2010
54.0
Important. An indication of consumers' willingness to spend. Weakness may lead to lower mortgage rates.
2-year Treasury Note Auction
Tuesday, April 27, 2010
None
Important. $44 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
5-year Treasury Note Auction
Wednesday, April 28, 2010
None
Important. $42 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
Fed Meeting Adjourns
Wednesday, April 28, 2010
No change
Important. Few expect the Fed to change rates, but some volatility may surround the adjournment of this meeting.
Weekly Jobless Claims
Thursday, April 29, 2010
455k
Moderately important. An indication of employment. A larger figure may lead to lower rates.
7-year Treasury Note Auction
Thursday, April 29, 2010
None
Important. $32 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
Q1 Advance GDP
Friday, April 30, 2010
3.5%
Very important. The aggregate measure of US economic production. Weakness may lead to lower rates.
Q1 Employment Cost Index
Friday, April 30, 2010
Up 0.4%
Very important. A measure of wage inflation. Weakness may lead to lower rates.
Consumer Confidence
The Conference Board releases the Consumer Confidence Index on the last Tuesday of every month. The report details the levels of confidence individual households have in the performance of the economy. The data is derived from a survey of 5,000 households nationwide. The survey polls consumer opinions on current business conditions, their jobs, their incomes, and their future spending plans.
The consumer confidence index is significant in that it provides a precursor into consumers' willingness to spend in the months ahead. However, many analysts point out that willingness to spend does not always convert to actual expenditures.
This week's release will be eagerly anticipated. Look for any variation from estimates to cause mortgage interest rate volatility. Signs of eroding consumer confidence could lead to improvements in mortgage interest rates. However, stronger than expected figures could spike rates higher.
The Fed meeting Wednesday will be the most important event this week. The Treasury auctions will also likely overshadow a lot of the other releases as traders digest record debt that continues to hit the market. Friday morning may be volatile as the employment cost index and gross domestic product data are very important releases.
--------------------------------------------------------------------------------
Economic Factors
Economic Indicator
Release Date Time
Consensus Estimate
Analysis
Consumer Confidence
Tuesday, April 27, 2010
54.0
Important. An indication of consumers' willingness to spend. Weakness may lead to lower mortgage rates.
2-year Treasury Note Auction
Tuesday, April 27, 2010
None
Important. $44 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
5-year Treasury Note Auction
Wednesday, April 28, 2010
None
Important. $42 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
Fed Meeting Adjourns
Wednesday, April 28, 2010
No change
Important. Few expect the Fed to change rates, but some volatility may surround the adjournment of this meeting.
Weekly Jobless Claims
Thursday, April 29, 2010
455k
Moderately important. An indication of employment. A larger figure may lead to lower rates.
7-year Treasury Note Auction
Thursday, April 29, 2010
None
Important. $32 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
Q1 Advance GDP
Friday, April 30, 2010
3.5%
Very important. The aggregate measure of US economic production. Weakness may lead to lower rates.
Q1 Employment Cost Index
Friday, April 30, 2010
Up 0.4%
Very important. A measure of wage inflation. Weakness may lead to lower rates.
Consumer Confidence
The Conference Board releases the Consumer Confidence Index on the last Tuesday of every month. The report details the levels of confidence individual households have in the performance of the economy. The data is derived from a survey of 5,000 households nationwide. The survey polls consumer opinions on current business conditions, their jobs, their incomes, and their future spending plans.
The consumer confidence index is significant in that it provides a precursor into consumers' willingness to spend in the months ahead. However, many analysts point out that willingness to spend does not always convert to actual expenditures.
This week's release will be eagerly anticipated. Look for any variation from estimates to cause mortgage interest rate volatility. Signs of eroding consumer confidence could lead to improvements in mortgage interest rates. However, stronger than expected figures could spike rates higher.
Thursday, April 22, 2010
Fico is King...
I was looking at Yahoo and came across this story...
In the land of credit scores, FICO is king. The bulk of banks in the United States use FICO scores to decide whether to offer credit to potential borrowers and at what interest rate. FICO has a major global presence, as well: According to the company's testimony before a House Financial Services Committee, FICO scores are used in about 10 billion decisions worldwide each year.
So how does FICO come up with its widely used score?
While the inner workings of the FICO scoring system are a closely guarded secret, the company is open about the general components of a FICO credit score. Using the information in a borrower's credit report, FICO breaks that information into categories. Those five components each get different weights. "FICO scores give the most attention to how you have paid back lenders in the past and how much you are using of the credit available to you, as shown on your credit report. Those two factors contribute roughly two-thirds of a typical person's FICO score," says FICO spokesman Craig Watts.
Here's a breakdown of the five elements of the FICO score:
1. Payment History: 35 Percent of the Total Credit Score
Based on a borrower's payment history, making the repayment of past debt the most important factor in calculating credit scores. According to FICO, past long-term behavior is used to forecast future long-term behavior.
FICO keeps an eye on both revolving loans -- like credit cards -- and installment loans, such as mortgages or student loans. Although the weight of each loan varies between individuals, FICO indicates that defaulting on a larger installment loan like a mortgage will damage a credit score more severely than defaulting on a smaller revolving loan. One of the best ways for borrowers to improve their credit score as a whole is by making consistent, timely payments.
2. Debt Amounts -- 30 Percent
Based on a borrower's total outstanding debt. Revolving lines of credit, which allow a consumer to borrow as much or as little as desired up to a limit (versus installment loans where a set amount -- say, $20,000 plus interest for a car -- is determined at the outset), are more heavily weighted. Credit cards are a type of revolving account.
Since FICO views borrowers who habitually max out credit cards -- or who get very close to their credit limits -- as people who cannot handle debt responsibly, a borrower should maintain low credit card balances. Experts recommend that the amount owed should not exceed 30 percent of the individual's credit limits. That 30 percent rule of thumb applies to each individual credit card as well as the overall level of debt.
The final components of a FICO credit score get less weight in the score's calculation. "The remaining one-third of your score is determined by how long you have managed credit, to what degree you have pursued new credit recently and the variety of credit types you have successfully handled," Watts says.
3. Length of Credit History -- 15 Percent
Based on the length of time each account has been open and the length of time since the account's most recent action.
As a result, it is impossible for a person who is new to credit to have a perfect credit score. A longer credit history provides more information and offers a better picture of long-term financial behavior. Therefore, to improve their credit scores, individuals without a history should begin using credit, and those with credit should maintain longstanding accounts.
4 and 5. New Credit and Credit Mix -- Each Comprise 10 Percent
Borrowers, even those new to credit, should avoid opening too many credit lines at the same time, since such behavior could suggest they are in financial trouble and need significant access to lots of credit. FICO suggests that borrowers only take on additional credit when they must have it or when it makes sense financially.
Credit mix, meanwhile, is somewhat of a vague category, but experts say that repaying a variety of debt indicates the borrower can handle all sorts of credit. According to FICO, historical data indicates that borrowers with a good mix of revolving credit and installment loans generally represent less risk for lenders.
Knowing the various weights given to components of a FICO credit score give borrowers a better idea where to focus their attention. "So to get a good score you mostly need a credit history with no reported late payments, as well as low reported balances currently on any credit cards," Watts says.
In the land of credit scores, FICO is king. The bulk of banks in the United States use FICO scores to decide whether to offer credit to potential borrowers and at what interest rate. FICO has a major global presence, as well: According to the company's testimony before a House Financial Services Committee, FICO scores are used in about 10 billion decisions worldwide each year.
So how does FICO come up with its widely used score?
While the inner workings of the FICO scoring system are a closely guarded secret, the company is open about the general components of a FICO credit score. Using the information in a borrower's credit report, FICO breaks that information into categories. Those five components each get different weights. "FICO scores give the most attention to how you have paid back lenders in the past and how much you are using of the credit available to you, as shown on your credit report. Those two factors contribute roughly two-thirds of a typical person's FICO score," says FICO spokesman Craig Watts.
Here's a breakdown of the five elements of the FICO score:
1. Payment History: 35 Percent of the Total Credit Score
Based on a borrower's payment history, making the repayment of past debt the most important factor in calculating credit scores. According to FICO, past long-term behavior is used to forecast future long-term behavior.
FICO keeps an eye on both revolving loans -- like credit cards -- and installment loans, such as mortgages or student loans. Although the weight of each loan varies between individuals, FICO indicates that defaulting on a larger installment loan like a mortgage will damage a credit score more severely than defaulting on a smaller revolving loan. One of the best ways for borrowers to improve their credit score as a whole is by making consistent, timely payments.
2. Debt Amounts -- 30 Percent
Based on a borrower's total outstanding debt. Revolving lines of credit, which allow a consumer to borrow as much or as little as desired up to a limit (versus installment loans where a set amount -- say, $20,000 plus interest for a car -- is determined at the outset), are more heavily weighted. Credit cards are a type of revolving account.
Since FICO views borrowers who habitually max out credit cards -- or who get very close to their credit limits -- as people who cannot handle debt responsibly, a borrower should maintain low credit card balances. Experts recommend that the amount owed should not exceed 30 percent of the individual's credit limits. That 30 percent rule of thumb applies to each individual credit card as well as the overall level of debt.
The final components of a FICO credit score get less weight in the score's calculation. "The remaining one-third of your score is determined by how long you have managed credit, to what degree you have pursued new credit recently and the variety of credit types you have successfully handled," Watts says.
3. Length of Credit History -- 15 Percent
Based on the length of time each account has been open and the length of time since the account's most recent action.
As a result, it is impossible for a person who is new to credit to have a perfect credit score. A longer credit history provides more information and offers a better picture of long-term financial behavior. Therefore, to improve their credit scores, individuals without a history should begin using credit, and those with credit should maintain longstanding accounts.
4 and 5. New Credit and Credit Mix -- Each Comprise 10 Percent
Borrowers, even those new to credit, should avoid opening too many credit lines at the same time, since such behavior could suggest they are in financial trouble and need significant access to lots of credit. FICO suggests that borrowers only take on additional credit when they must have it or when it makes sense financially.
Credit mix, meanwhile, is somewhat of a vague category, but experts say that repaying a variety of debt indicates the borrower can handle all sorts of credit. According to FICO, historical data indicates that borrowers with a good mix of revolving credit and installment loans generally represent less risk for lenders.
Knowing the various weights given to components of a FICO credit score give borrowers a better idea where to focus their attention. "So to get a good score you mostly need a credit history with no reported late payments, as well as low reported balances currently on any credit cards," Watts says.
Monday, April 19, 2010
Market Comment - Week of April 19th, 2010
Mortgage bond prices rose last week, which helped mortgage interest rates improve. Oil prices continued to fall off the beginning of the week. Fortunately mortgage bonds rallied nicely amid the tame inflation environment. Unfortunately that trend reversed mid week as oil prices spiked tied to a report which indicated supplies declines. Stocks also surged higher as earnings reports generally pleased investors. The DOW easily eclipsed the 11,000 mark.
Despite this, rates still managed to improve by about 1/4 of a discount point for the week.
Leading economic indicators data Monday will set the tone for trading this week. The producer inflation data will be the most important release. If inflation pressures emerge mortgage interest rates may be pressured higher.
--------------------------------------------------------------------------------
Economic Factors
Economic Indicator
Release Date Time
Consensus Estimate
Analysis
Leading Economic Indicators
Monday, April 19, 2010
Up 1.0%
Important. An indication of future economic activity. Weakness may lead to lower rates.
Weekly Jobless Claims
Thursday, April 22, 2010
465K
Important. An indication of employment. An increase in jobless claims may bring lower rates.
Producer Price Index
Thursday, April 22, 2010
Up 0.5%, Core up 0.1%
Important. An indication of inflationary pressures at the producer level. Decreases may lead to lower rates.
Existing Home Sales
Thursday, April 22, 2010
5.3M
Low importance. An indication of mortgage credit demand. Significant weakness may lead to lower rates.
Durable Goods Orders
Friday, April 23, 2010
Unchanged
Important. An indication of the demand for "big ticket" items. Weakness may lead to lower rates.
New Home Sales
Friday, April 23, 2010
Up 1.9%
Important. An indication of economic strength and credit demand. Weakness may lead to lower rates.
Durable Goods Orders
Durable goods orders are generally believed to be a precursor of activity in the manufacturing sector because manufacturing must have an order before considering an increase in production. Conversely, a decrease in orders eventually causes production to be scaled back; otherwise the manufacturer accumulates inventories, which must be financed.
Unfortunately, durable goods orders data has many drawbacks. The first problem with the orders data is that they are extremely volatile. The volatility of the data usually is attributed to the civilian aircraft and defense components of the figure. For example, if Boeing has a big order for one of its jumbo jets, the civilian aircraft category can change by $3-4 billion. The same scenario is evident when an aircraft carrier is ordered, surges in the defense category result. The second problem with the data is that orders are continuously being revised. There are many times in the past when the advance report on durables showed an increase while a revision a week later showed a decrease. The revised data is found in the report on manufacturing orders, shipments, and inventories.
Since the data is very volatile and difficult to forecast, there is quite often a huge disparity between the actual release and the initial projections. If the durable goods report is much stronger than expected, look for mortgage interest rates to push higher. If favorable, the data may help interest rates remain steady or even push lower.
Despite this, rates still managed to improve by about 1/4 of a discount point for the week.
Leading economic indicators data Monday will set the tone for trading this week. The producer inflation data will be the most important release. If inflation pressures emerge mortgage interest rates may be pressured higher.
--------------------------------------------------------------------------------
Economic Factors
Economic Indicator
Release Date Time
Consensus Estimate
Analysis
Leading Economic Indicators
Monday, April 19, 2010
Up 1.0%
Important. An indication of future economic activity. Weakness may lead to lower rates.
Weekly Jobless Claims
Thursday, April 22, 2010
465K
Important. An indication of employment. An increase in jobless claims may bring lower rates.
Producer Price Index
Thursday, April 22, 2010
Up 0.5%, Core up 0.1%
Important. An indication of inflationary pressures at the producer level. Decreases may lead to lower rates.
Existing Home Sales
Thursday, April 22, 2010
5.3M
Low importance. An indication of mortgage credit demand. Significant weakness may lead to lower rates.
Durable Goods Orders
Friday, April 23, 2010
Unchanged
Important. An indication of the demand for "big ticket" items. Weakness may lead to lower rates.
New Home Sales
Friday, April 23, 2010
Up 1.9%
Important. An indication of economic strength and credit demand. Weakness may lead to lower rates.
Durable Goods Orders
Durable goods orders are generally believed to be a precursor of activity in the manufacturing sector because manufacturing must have an order before considering an increase in production. Conversely, a decrease in orders eventually causes production to be scaled back; otherwise the manufacturer accumulates inventories, which must be financed.
Unfortunately, durable goods orders data has many drawbacks. The first problem with the orders data is that they are extremely volatile. The volatility of the data usually is attributed to the civilian aircraft and defense components of the figure. For example, if Boeing has a big order for one of its jumbo jets, the civilian aircraft category can change by $3-4 billion. The same scenario is evident when an aircraft carrier is ordered, surges in the defense category result. The second problem with the data is that orders are continuously being revised. There are many times in the past when the advance report on durables showed an increase while a revision a week later showed a decrease. The revised data is found in the report on manufacturing orders, shipments, and inventories.
Since the data is very volatile and difficult to forecast, there is quite often a huge disparity between the actual release and the initial projections. If the durable goods report is much stronger than expected, look for mortgage interest rates to push higher. If favorable, the data may help interest rates remain steady or even push lower.
Thursday, April 15, 2010
Monday, April 12, 2010
Market Comment - Week of April 12th, 2010
Mortgage bond prices rose last week, which helped mortgage interest rates improve slightly. The first portion of the week was generally bond friendly as the Fed minutes showed real concern about the economy's ability to recover with so many job losses. Stocks and bonds generally traded inversely as the DOW tested the 11,000 mark a few times during the week in up and down trading. Unfortunately a large portion of the improvements was erased as oil prices traded around $87/barrel and inflation fears emerged. Despite this, rates still managed to improve by about 1/4 of a discount point for the week.
The consumer price index Wednesday will be the most important release this week. The abundance of important economic releases has the potential to result in a very volatile week for mortgage interest rates. If the data shows signs of weakness we could see rates improve.
--------------------------------------------------------------------------------
Economic Factors
Economic Indicator
Release Date Time
Consensus Estimate
Analysis
Trade Data
Tuesday, April 13, 2010
$38 billion
Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates.
Consumer Price Index
Wednesday, April 14, 2010
Up 0.1%, Core up 0.1%
Important. A measure of inflation at the consumer level. Weaker figures may lead to lower rates.
Retail Sales
Wednesday, April 14, 2010
Up 0.2%
Important. A measure of consumer demand. A smaller than expected increase may lead to lower mortgage rates.
Business Inventories
Wednesday, April 14, 2010
Up 0.1%
Low importance. An indication of stored-up capacity. A significantly larger increase may lead to lower rates.
Fed "Beige Book"
Wednesday, April 14, 2010
None
Important. This Fed report details current economic conditions across the US. Signs of weakness may lead to lower rates.
Industrial Production
Thursday, April 15, 2010
Up 0.2%
Important. A measure of manufacturing sector strength. A lower than expected increase may lead to lower rates.
Capacity Utilization
Thursday, April 15, 2010
72.5%
Important. A figure above 85% is viewed as inflationary. Weakness may lead to lower rates.
Housing Starts
Friday, April 16, 2010
Down 2.1%
Important. A measure of housing sector strength. Larger than expected decreases may lead to lower rates.
Oil
Inflation fears tied to rising energy prices have reemerged. At one point oil prices rose near $87/barrel last week causing many analysts to revise forecasts. Goldman Sachs and Morgan Stanley both predict oil prices will rise above $100/barrel next year. The concern is that rising energy costs could permeate through the markets and damage economies around the globe that are struggling to regain footing. Inflation, real or perceived, generally erodes the value of fixed income securities causing prices to fall and rates to rise. This could pressure mortgage interest rates higher further stifling a recovery in the US housing sector
The consumer price index Wednesday will be the most important release this week. The abundance of important economic releases has the potential to result in a very volatile week for mortgage interest rates. If the data shows signs of weakness we could see rates improve.
--------------------------------------------------------------------------------
Economic Factors
Economic Indicator
Release Date Time
Consensus Estimate
Analysis
Trade Data
Tuesday, April 13, 2010
$38 billion
Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates.
Consumer Price Index
Wednesday, April 14, 2010
Up 0.1%, Core up 0.1%
Important. A measure of inflation at the consumer level. Weaker figures may lead to lower rates.
Retail Sales
Wednesday, April 14, 2010
Up 0.2%
Important. A measure of consumer demand. A smaller than expected increase may lead to lower mortgage rates.
Business Inventories
Wednesday, April 14, 2010
Up 0.1%
Low importance. An indication of stored-up capacity. A significantly larger increase may lead to lower rates.
Fed "Beige Book"
Wednesday, April 14, 2010
None
Important. This Fed report details current economic conditions across the US. Signs of weakness may lead to lower rates.
Industrial Production
Thursday, April 15, 2010
Up 0.2%
Important. A measure of manufacturing sector strength. A lower than expected increase may lead to lower rates.
Capacity Utilization
Thursday, April 15, 2010
72.5%
Important. A figure above 85% is viewed as inflationary. Weakness may lead to lower rates.
Housing Starts
Friday, April 16, 2010
Down 2.1%
Important. A measure of housing sector strength. Larger than expected decreases may lead to lower rates.
Oil
Inflation fears tied to rising energy prices have reemerged. At one point oil prices rose near $87/barrel last week causing many analysts to revise forecasts. Goldman Sachs and Morgan Stanley both predict oil prices will rise above $100/barrel next year. The concern is that rising energy costs could permeate through the markets and damage economies around the globe that are struggling to regain footing. Inflation, real or perceived, generally erodes the value of fixed income securities causing prices to fall and rates to rise. This could pressure mortgage interest rates higher further stifling a recovery in the US housing sector
Thursday, April 8, 2010
Last Week, Why Did Rates Rise So Much?
A lot transpired last week that directly impacted mortgage rates.
First, the Federal Reserve stopped buying new mortgage-backed securities. This was not a surprise by any means -- the Fed had been announced a March 31 end date for month, but after all the short coverings had come and gone, mortgage markets traded worse ahead of the expected supply-demand imbalance.
Lower bond prices yield higher mortgage rates.
Better-than-expected data on the economy helped push rates north, too. Auto sales were way up, the Case-Shiller showed strength in housing, and the jobs report was nearly nearly as bad as it looked on the surface.
Furthermore, because of Spring Break, trading volume was thin and that magnified the jumps in pricing.
Overall, mortgage pricing shed 103 basis points, roughly equal to a 0.375% rise in rates.
A lot transpired last week that directly impacted mortgage rates.
First, the Federal Reserve stopped buying new mortgage-backed securities. This was not a surprise by any means -- the Fed had been announced a March 31 end date for month, but after all the short coverings had come and gone, mortgage markets traded worse ahead of the expected supply-demand imbalance.
Lower bond prices yield higher mortgage rates.
Better-than-expected data on the economy helped push rates north, too. Auto sales were way up, the Case-Shiller showed strength in housing, and the jobs report was nearly nearly as bad as it looked on the surface.
Furthermore, because of Spring Break, trading volume was thin and that magnified the jumps in pricing.
Overall, mortgage pricing shed 103 basis points, roughly equal to a 0.375% rise in rates.
Wednesday, April 7, 2010
Things to avoid before buying a home
Many new homebuyers make the mistake of rushing out to buy things to fill their home with as soon as the seller accepts their purchase offer and the lender pre-approves their loan. But there are still a few major hurdles to overcome before the keys are handed out. Here are some things to avoid during the home buying process to assure your transaction goes as smoothly as possible:
Don't make an expensive purchase. It may be tempting to order that new sofa for your soon-to-be living room, but its best to avoid making major purchases like furniture, cars, appliances, electronic equipment, jewelry, or vacations until after the closing. Financing that furniture with a store credit card or even one of your own credit cards could jeopardize your credit worthiness during the time it means the most. Using cash to purchase big items can also create a problem because many banks take into consideration your cash reserve when approving your mortgage.
Don't get a new job. Lenders like to see a consistent job history. Generally, changing jobs will not affect your ability to qualify for a mortgage loan - especially if you are going to be making more money. But for some people, getting a new job during the loan approval process could raise some concern and affect your application.
Don't switch banks or move money around. As your lender reviews your loan package, you will likely be asked to provide bank statements for the last two or three months on your checking accounts, savings accounts, money market funds and other liquid assets. To eliminate potential fraud, most loans require a thorough paper trail to document the source of all funds. Changing banks or transferring money to another account - even if its just to consolidate funds - could make it difficult for the lender to document your funds.
Don't give a good faith deposit directly to the seller in a FSBO purchase. As a rule, your good faith deposit belongs to you, not to the seller, until the deal closes. Your FSBO seller may not know that your good faith funds should be applied to your expenses at closing. Get an attorney or other neutral party who can hold the deposit or put it in a trust account until you close on the home. Your purchase contract should dictate to whom the funds go should the transaction fall through.
Don't disregard your lenders requirements. You may have been pre-approved for the loan but your work with the lender is far from over. In order to process your loan, you need to meet certain requirements. Your lender will need copies of your bank statements, W2s and other paperwork. It is up to you to get it to him or her as soon as possible. Failure to submit certain qualifying documents could cause you to lose your loan and the financing you need to buy your home.
Monday, April 5, 2010
Market Comment - Week of April 5th, 2010
Mortgage bond prices fell again last week pushing mortgage interest rates higher. The Fed ended the mortgage backed securities purchase program last Wednesday. There was no coincidence that rates spiked higher Thursday morning with the Fed no longer there to buffer negative movements and keep rates in check. Stock strength also pressured bonds as the Dow approached the 11,000 mark. Escalating oil prices also caused rates to spike higher as inflation fears begin to increase. Fortunately the PCE Price Index data came in as expected. Rates rose about 3/4 of a discount point for the week.
The Treasury auctions will once again take center stage this week. If foreign demand is lackluster like the last few auctions we could see that carry over to the mortgage bond market causing rates to spike. The Fed minutes and weekly jobless claims may also move the market this week.
--------------------------------------------------------------------------------
Economic Factors
Economic Indicator
Release Date Time
Consensus Estimate
Analysis
3-year Treasury Note Auction
Tuesday, April 6, 2010
None
Important. $40 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
Fed Minutes
Tuesday, April 6, 2010
None
Important. Details of last Fed meeting. Volatility may surround the release.
Consumer Credit
Wednesday, April 7, 2010
Up $1.6 billion
Low importance. A significantly larger than expected increase may lead to lower mortgage interest rates.
10-year Treasury Note Auction
Wednesday, April 7, 2010
None
Important. $21 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
Weekly Jobless Claims
Thursday, April 8, 2010
430k
Moderately Important. An indication unemployment. Higher claims may lead to lower rates.
30-year Treasury Bond Auction
Thursday, April 8, 2010
None
Important. $13 billion of bonds will be auctioned. Strong demand may lead to lower mortgage rates.
Treasuries
The 10 and 30-year Treasury bond yields are often viewed as "benchmarks", reflecting the overall state of interest rates in the US economy. Many people concerned about mortgage interest rates track these bonds as a barometer for mortgage interest rates. However, in reality the Treasury and mortgage markets trade independently.
The supply and demand characteristics of Treasury bonds and mortgage-backed securities (MBSs) differ. Treasury securities represent money needed to fund the operations of the US government. MBSs, on the other hand, represent borrowing by homeowners. Demand for mortgage credit is seasonal and is also affected by the state of the overall economy. In terms of demand, Treasury securities are regarded as "risk free" investments, and often benefit from a "flight to quality" in times of financial crisis. Treasury bill, note, and bond prices are dictated by yield requirements and inflationary concerns. Because homeowners can sell or refinance their homes, investors in 30-year mortgage-backed securities usually see principal repayment in significantly shorter periods of time.
In the absence of information directly related to the mortgage interest rate markets, Treasury information can be useful. However, mortgage interest rates can vary significantly. In fact, many times the Treasuries will trade wildly while MBSs only see minor price changes and vice versa.
Mortgage bond prices fell again last week pushing mortgage interest rates higher. The Fed ended the mortgage backed securities purchase program last Wednesday. There was no coincidence that rates spiked higher Thursday morning with the Fed no longer there to buffer negative movements and keep rates in check. Stock strength also pressured bonds as the Dow approached the 11,000 mark. Escalating oil prices also caused rates to spike higher as inflation fears begin to increase. Fortunately the PCE Price Index data came in as expected. Rates rose about 3/4 of a discount point for the week.
The Treasury auctions will once again take center stage this week. If foreign demand is lackluster like the last few auctions we could see that carry over to the mortgage bond market causing rates to spike. The Fed minutes and weekly jobless claims may also move the market this week.
--------------------------------------------------------------------------------
Economic Factors
Economic Indicator
Release Date Time
Consensus Estimate
Analysis
3-year Treasury Note Auction
Tuesday, April 6, 2010
None
Important. $40 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
Fed Minutes
Tuesday, April 6, 2010
None
Important. Details of last Fed meeting. Volatility may surround the release.
Consumer Credit
Wednesday, April 7, 2010
Up $1.6 billion
Low importance. A significantly larger than expected increase may lead to lower mortgage interest rates.
10-year Treasury Note Auction
Wednesday, April 7, 2010
None
Important. $21 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
Weekly Jobless Claims
Thursday, April 8, 2010
430k
Moderately Important. An indication unemployment. Higher claims may lead to lower rates.
30-year Treasury Bond Auction
Thursday, April 8, 2010
None
Important. $13 billion of bonds will be auctioned. Strong demand may lead to lower mortgage rates.
Treasuries
The 10 and 30-year Treasury bond yields are often viewed as "benchmarks", reflecting the overall state of interest rates in the US economy. Many people concerned about mortgage interest rates track these bonds as a barometer for mortgage interest rates. However, in reality the Treasury and mortgage markets trade independently.
The supply and demand characteristics of Treasury bonds and mortgage-backed securities (MBSs) differ. Treasury securities represent money needed to fund the operations of the US government. MBSs, on the other hand, represent borrowing by homeowners. Demand for mortgage credit is seasonal and is also affected by the state of the overall economy. In terms of demand, Treasury securities are regarded as "risk free" investments, and often benefit from a "flight to quality" in times of financial crisis. Treasury bill, note, and bond prices are dictated by yield requirements and inflationary concerns. Because homeowners can sell or refinance their homes, investors in 30-year mortgage-backed securities usually see principal repayment in significantly shorter periods of time.
In the absence of information directly related to the mortgage interest rate markets, Treasury information can be useful. However, mortgage interest rates can vary significantly. In fact, many times the Treasuries will trade wildly while MBSs only see minor price changes and vice versa.
Thursday, April 1, 2010
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