Mortgage bond prices rose last week applying downward pressure on mortgage interest rates. The bond market got a boost from the Fed announcement (read below) to buy more mortgage debt. There was
some profit taking in bonds Thursday afternoon following the run-up in prices Wednesday. Higher than expected core readings of the consumer and producer price indices reignited some inflation concerns. The Fed's continued efforts to pump money into mortgage
bonds helped keep mortgage interest rates favorable. For the week, interest rates on government and conventional loans fell by about 1/2 of a discount point.
The Treasury auctions will once again take center stage this week as additional debt supply hits the market. Durable goods orders and consumer sentiment data will be important.
Additional Fed Money
Last week the Federal Reserve announced it would pump another $750 billion into purchasing more mortgage-backed securities, the bonds that directly dictate 30 year and 15 year fixed rate Government
and Conventional mortgage interest rates. This is in addition to the $500 billion being used between January and June to drive mortgage interest rates lower and help stimulate the economy.
So far the Fed has been able to keep mortgage interest rates relatively low while not destroying the functioning secondary market where investors buy and sell mortgage bonds. The potential negative is that the Fed has become the primary purchaser of these bonds.
In the short term take advantage of these advantageous rates. There is uncertainty how things will play out once the Fed begins to unwind those positions in the future.