Market Comment - Week of July 13th, 2009
July 13th, 2009 10:06 AM

Mortgage bond prices had another volatile week with rates rallying midweek as the additional Treasury debt was absorbed well. Foreign demand for the shorter-term auctions was surprisingly strong while the longer-term auction was average. The US Treasury auctioned $963 billion of debt the first half of this year and is expected to offer $1.1trillion in he second half. Weekly jobless claims were not as bad as expected which didn't help mortgage bond prices. However, falling oil prices helped ease inflation fears and enabled mortgage bond prices to increase, which pushed rates lower. Oil was under $60/barrel last Thursday morning. For the week interest rates improved by about 1/2 of a discount point.

The consumer price index data Wednesday will be the most important data this week. Signs of inflationary pressures from any of the data releases will not bode well for mortgage interest rates.

Economic Factors
Economic Indicator
Release Date Time
Consensus Estimate
Producer Price Index
Tuesday, July 14, 2009
Up 0.7%, Core up 0.1%
Important. An indication of inflationary pressures at the producer level. Lower figures may lead to lower rates.
Retail Sales
Tuesday, July 14, 2009
Up 0.5%
Important. A measure of consumer demand. A smaller than expected increase may lead to lower mortgage rates.
Consumer Price Index
Wednesday, July 15, 2009
Up 0.6%, Core up 0.1%
Important. A measure of inflation at the consumer level. Lower figures may lead to lower rates.
Industrial Production
Wednesday, July 15, 2009
Down 0.6%
Important. A measure of manufacturing sector strength. Weakness may lead to lower rates.
Capacity Utilization
Wednesday, July 15, 2009
Important. A figure above 85% is viewed as inflationary. Weakness may lead to lower rates.
Fed Minutes
Wednesday, July 15, 2009
Important. Details of the last Fed meeting will be thoroughly analyzed.
Philadelphia Fed Survey
Thursday, July 16, 2009
Moderately important. A survey of business conditions in the Northeast. Weakness may lead to lower rates.
Housing Starts
Friday, July 17, 2009
Down 0.1%
Important. A measure of housing sector strength. Larger than expected decrease may lead to lower rates.

Fed Minutes

The Federal Open Market Committee decided in December of 2004 to reduce the lag time between the open market committee meeting and the release of the minutes from six to eight weeks to only three weeks. The minutes from the meeting have the ability to cause mortgage interest rate volatility because they provide more policy details than the standard post meeting release. Most importantly the minutes provide the Fed's complete economic analysis and the various opinions of individual Fed members. There is typically an overwhelming consensus among the members. However, there can also be dissension, which often causes uneasiness in the financial markets. The release often comes and goes without much uproar but keep in mind that if any of the text seems troubling to analysts you can see market volatility.

Remember that mortgage interest rates remaining historically favorable. Capitalizing on current levels is wise amid the recent economic instability across the globe. Inflation fears could be stoked with continued Middle East tension and hurricane season heading our way. Inflation, real or perceived, generally does not bode well for mortgage bonds and could cause rates to rise.

Posted in:General
Posted by Philip Jernigan on July 13th, 2009 10:06 AMPost a Comment

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