Mortgage bond prices remained unchanged for the week keeping mortgage interest rates steady. Trading remained volatile with rates improving the first portion of week. However, some of the data came
in surprisingly better than expected Thursday and Friday which caused mortgage bond prices to fall and rates to rise. The labor cost component of the productivity report along with the Fed Chairman's concerns about the possibility of future inflation caused
some steep price declines the latter portion of the week. Unfortunately this eroded most the improvements from Monday and Tuesday. For the week, interest rates finished near unchanged.
The consumer and producer price data will be the most significant economic events this week. Trade and retail sales data may also result in some mortgage interest rate volatility.
There is a Chinese proverb that states, "May you live in interesting times." It is often argued that the word interesting is meant to be a synonym for turbulent or dangerous. This phrase hits the
bull's-eye given the current state of the financial markets.
While stocks and bonds are swinging around wildly there is some good news. Interest rates for conforming and FHA/VA loans are still historically low by many standards.
However, low rates are not a given considering the escalating inflation fears that reemerged recently. Oil prices rose most of last week and Fed Chairman Bernanke expressed concerns about "how to wind down the federal balance sheet" and "avoid inflation." When
a Fed official mentions inflation it is generally not positive for bonds. Inflation, real or perceived, erodes the value of bonds causing bond prices to fall and rates to rise. The last thing the economy needs now is rising mortgage interest rates. If inflation
emerges that very well may happen despite the continued Fed efforts to keep rates low. With so much uncertainty, a cautious approach to float lock decisions, especially heading into the inflation data this week, would be wise.