Market Comment- Week of May 10, 2010

Mortgage bond prices rose last week pushing mortgage interest rates lower. Trading was once again dominated by foreign influences as the Greek debt concerns spread across the globe. US stocks fell precipitously Thursday afternoon. At one point the DOW was down over 900 points. This sent a flood of investor funds into mortgage bonds helping rates improve. The data for the week was mixed with higher than expected unemployment and a larger than expected payrolls figure. Oil prices fell to around $77/barrel, which helped alleviate inflation concerns. Rates fell by about 3/4 of a discount point for the week.

The retail sales data Friday will be the most important event this week. The Treasury auctions will also take center stage as market participants cautiously await the result to determine foreign investor appetite for US debt instruments.


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Economic Factors
Economic Indicator Release Date Time Consensus Estimate Analysis
3-year Treasury Note Auction Tuesday, May 11, 2010 None Important. $38 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
Trade Data Wednesday, May 12, 2010 $39.5 billion deficit Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates.
10-year Treasury Note Auction Wednesday, May 12, 2010 None Important. $24 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
Weekly Jobless Claims Thursday, May 13, 2010 410k Moderately important. An increase in claims may bring lower rates.
30-year Treasury Bond Auction Thursday, May 13, 2010 None Important. $16 billion of bonds will be auctioned. Strong demand may lead to lower mortgage rates.
Retail Sales Friday, March 14, 2010 Up 0.4% Important. A measure of consumer demand. A smaller than expected increase may lead to lower mortgage rates.
Industrial Production Friday, March 14, 2010 Up 0.5% Important. A measure of manufacturing sector strength. A lower than expected increase may lead to lower rates.
Capacity Utilization Friday, March 14, 2010 73.3% Important. A figure above 85% is viewed as inflationary. A decrease may lead to lower mortgage interest rates.


Global Uncertainty

The inability of Greece to pay their debt continues to result in economic uncertainty across the globe. The recent announcement that Greece would receive aid from the other Euro members initially resulted in some stability. However, the aid package didn't erase the concern that Greece could still default and the contagion may spread to other countries.

The positive for US dollar-denominated securities is the flight to quality buying that often occurs with the turmoil abroad. Investors often exit troubled markets and pour their money into US securities such as mortgage bonds. This pushes mortgage bond prices higher causing rates to fall in the short term. Unfortunately the improvements can evaporate just as quickly as they appear if the inverse flight occurs. With that in mind be cautious in the event the wild market swings continue.