Mortgage Market in Review from Monte Hill week of 2/5/2007
Mortgage Market in Review from Monte Hill week of 1/22/2007
Market Comment
Mortgage bond prices rose pushing rates lower last week. Bonds got a much-needed boost following the Fed meeting. Fed officials kept rates unchanged and indicated inflationary pressures were moderating. The remarks helped alleviate fears of a near term Fed rate increase. The employment report also resulted in some positive movements in mortgage bonds. Unemployment came in at 4.6%, higher than expected.
For the week, interest rates on government and conventional loans fell by about 3/8 of a discount point.
The productivity data Wednesday will be the most important event this week. The Treasury auctions and jobless claims data will also be watched.
Looking Ahead |
Economic Indicator | Release Date and Time | Consensus Estimate | Analysis |
Preliminary Q4 Productivity | Wednesday, Feb. 7, 8:30 pm, et | Up 1.7% | Important. A measure of output per hour. Weakness may lead to lower mortgage rates. |
10-year Treasury Note Auction | Wednesday, Feb. 7, 1:30 pm, et | None | Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates. |
Consumer Credit | Wednesday, Feb. 7, 3:00 pm, et | Up $6.5 billion | Low importance. A significantly larger than expected increase may lead to lower mortgage interest rates. |
Weekly Jobless Claims | Thursday, Feb. 8, 8:30 am, et | 310k | Moderately Important. With little data this week more weight may be placed on the release. |
30-year Treasury Bond Auction | Thursday, Feb. 8, 1:30 pm, et | None | Important. Bonds will be auctioned. Strong demand may lead to lower mortgage rates. |
Foreign Demand
Global investors are constantly searching for opportunities that will provide the greatest return with the least amount of acceptable risk. Investment products inherently all possess some sort of risk. As foreign financial markets struggled, many market participants withdrew their funds and searched for a safe haven in the US financial markets. With the backing of the US Government, investors viewed the US Treasury and mortgage bond markets as less risky investment opportunities amid global economic uncertainty. This resulted in an increased demand for US investments, such as the mortgage-backed securities that affect mortgage interest rates. Increased demand for mortgage bonds drove the prices higher and interest rates lower.
The European Central Bank is very optimistic that growth will continue. Economic strength typically sends money out of the fixed-income markets and into riskier instruments, and prompts concerns about aggressive monetary policy. Unfortunately growth abroad can often lead to a reversal of the influx of investor funds to the United States, a decrease in mortgage bond prices, and an increase in mortgage interest rates. There remain some concerns that a German value added tax, which began the beginning of this year, may hurt overall European growth.
While the future of the foreign economies is still unknown, the potential repercussions cannot be ignored. If those markets strengthen, mortgage interest rates may head higher. However, to the extent that there is still uncertainty, the US financial markets are likely to generally remain in favor among world investors. The Treasury auctions this week will provide an indicator of foreign demand.
Considering the improbability of predicting how the market will react on a day-to-day trading basis, a cautious approach is necessary to protect against extreme short-term market volatility resulting in increased interest rates.
German value added tax, which began the beginning of this year, may hurt overall European growth.
While the future of the foreign economies is still unknown, the potential repercussions cannot be ignored. If those markets strengthen, mortgage interest rates may head higher. However, to the extent that there is still uncertainty, the US financial markets are likely to generally remain in favor among world investors. The Treasury auctions this week will provide an indicator of foreign demand.
Monte J. Hill
586-308-6420
MacombHomeLending.com