The Mortgage Market Watch for the Week of September 7, 2009
Events Affecting the Mortgage Market This Week:
There are three Treasury auctions scheduled this week that may have an impact on the mortgage market. They are the 3-Year Note auction on Tuesday, the 10-Year Note auction on Wednesday, and the 30-Year Note auction on Thursday. The results will be posted at 1:00 pm each day. It's common to see some weakness in the prices of bonds and mortgage backed securities (which means higher yields and mortgage interest rates) ahead of these auctions as investors prepare for them. However, if the demand for these Notes is strong, then we should see mortgage interest rates improve during afternoon trading on Tuesday, Wednesday and Thursday.
Economic Reports to be Released This Week:
There are only three economic reports scheduled for release this week, and none of them are considered to be very important to the mortgage market.
Monday, September 7th:
- Labor Day. Markets are closed. There are no economic reports expected to be released today.
Tuesday, September 8th:
- There are no economic reports expected to be released today.
Wednesday, September 9th:
- The Federal Reserve Beige Book - this report is released two weeks ahead of the Federal Open Market Committee (FOMC) meeting, and details the current economic conditions in each of the 12 Federal Reserve districts. The Beige Book is believed to be a key source of economic data for the Fed when they meet for their FOMC meetings. The next FOMC meeting is scheduled for September 22 - 23. If the Beige Book reveals any significant surprises, then we may see some movement in the markets and as well mortgage interest rates. However, the Beige Book report will most likely be a non-event, and it will have little or no impact on the mortgage market.
Thursday, September 10th:
- Goods and Services Trade Balance report for July - this report provides us with the size of the U.S. trade deficit. The report is expected to reveal a $28.0 billion trade deficit, which would be a slight increase from the $27.0 billion trade deficit in June. However, this the least important report of the week, and it will have little or no impact on the mortgage market.
- Jobless Claims - New claims for unemployment are tabulated each week to show the number of individuals who filed for unemployment insurance for the first time. Analysts are predicting that 565,000 new claims for unemployment will have been filed last week. There were 570,000 new claims filed the previous week. The weekly job loss has steadied at around the 570,000 level while continuing claims for unemployment increased slightly last week to 6.234 million. This indicates that it's still taking time for the jobless to find work, with some either finding work or have exhausted their unemployment benefits. With the high rate of people unemployed, the threat of wage based inflation remains subdued. Employers do not have to pay higher wages to attract new employees during high unemployment times as people will be happy just to have a job. This data is usually not considered to be very important to the mortgage market.
- Fed's MBS Purchase Program - The results of this week's purchases of mortgage backed securities by the Feds will be released in the afternoon. As of last Thursday, the Feds have purchased over $817 billion in mortgage backed securities this year. The Feds plan on purchasing up to $1.25 trillion in mortgage backed securities through December 31st.
Friday, September 11th:
- University of Michigan's Index of Consumer Sentiment - the index provides an indication of consumer confidence, which hints at the willingness of consumers to spend. This index influences future consumer spending data and can have an impact on the financial markets. If confidence is rising, consumers are more likely to make large purchases. But, if they are growing more concerned about their personal financial situations, they probably will delay making that large purchase. The index is expected to show a reading of 67.0, an increase from the final reading of 65.7 in August. That could potentially have a negative impact on the mortgage market and cause mortgage interest rates to rise.
How do Economic Data Releases Affect Mortgage Interest Rates?
One of the most important things for you to know when deciding when to lock in the interest rate on your mortgage is knowing what economic data is going to be released - and when - and how it may impact the mortgage market and mortgage interest rates.
While an in depth review of an economic event can help you make an informed decision, understanding the nuances of a release can't help you if you don't know when it's happening. Economic data releases are important because they provide a snapshot of what's happening in the economy. They also provide a foreshadowing of any upcoming market volatility. It's just as important to know when these data releases are happening as knowing what effect these releases can have on the mortgage market.
Recent Mortgage Interest Rate Activity:
The chart below shows the upward trend in the price of the FNMA 30-Year 4.5% coupon over the past two weeks:
The graph below shows the upward trend in the price of the FNMA 30-Year 4.5% coupon over the past 30 days (white line) as well as its 30 day moving average (green line):
Remember - as the prices of mortgage backed securities goes up, the yields come down - and mortgage interest rates come down with it. Conversely, as the prices of mortgage backed securities goes down, the yields go up - and so do mortgage interest rates.
Mortgage Interest Rate Outlook:
Low to Moderate Volatility. Overall, this week looks like it will be much less active for mortgage rates than it has the past several months. There are only have four days of trading this week, and none of the economic reports scheduled for release will have any major impact on the mortgage market. Thus, the stock markets will likely have the most influence on the mortgage market this week. As long as the stock markets do not stage a sizable rally or sell-off this week, I believe we may see only minor changes in mortgage rates this week.
East Bridgewater, MA 02333
Lew Corcoran, ASP®, IAHSP, IAHSP-CB