Market Comment
Mortgage bond prices fell last week pushing mortgage interest rates higher. The bond market was choppy most of the week as thin trading conditions magnified movements. We started the week with rates heading higher Monday. Fortunately there was a bit of a rally Tuesday and Wednesday as the Treasury auctions were decent. Those gains were short-lived as the weekly jobless claims figure wasn’t as bad as expected. The bond market closed early Thursday and was closed the entire day Friday.

For the week, interest rates rose by about 1/4 of a discount point.

ISM Index data will set the tone for trading this week. The employment report will be the most important release but it doesn’t arrive until Friday. This will be the first full week of trading this year. It will be interesting to see how traders react to the recent spike in rates following the various shortened trading sessions.

The Year Ahead


This year begins in a similar fashion to last year. Last year at this time, 30-year fixed rate mortgage interest rates were historically low. Most pundits predicted little or no opportunities for additional refinancing. Mortgage interest rates spiked higher throughout the year, but overall, the Fed did an excellent job of keeping rates in check. Unfortunately the Fed’s $1.25 trillion mortgage backed securities (MBS) purchasing program is nearing the end. 30-year fixed rate mortgages remain low, though future predictions are all over the board.

However, mortgage interest rates could drop considering the Fed still has a few hundred billion dollars of MBS purchasing left. However, we are in unprecedented times. The Fed has signaled they want rates to remain low but also want to exit the market. The Fed isn’t the only player in the mortgage bond market and there are many others buying and selling the securities. Moreover, the Fed does not directly dictate that mortgage interest rates will be at a certain percentage. Rates are determined by the supply and demand for mortgage-backed securities.

The Fed kept rates in check for 2009. The big unknown is how they will exit the market without causing major disturbances this year. Without the Fed buying mortgage bonds, rates may head considerably higher. Now is a great time to take advantage of favorable rates.

Market Comment
Mortgage bond prices rose last week pushing mortgage interest rates lower. Rates initially spiked higher, following higher than expected producer price index figures. Fortunately, the consumer price index showed tame inflation on the consumer level and mortgage bonds were able to recover. The Fed kept rates unchanged, indicated they would try to keep rates low for some time, but also warned that long term security purchases would cease at the end of Q1 2010.

For the week, interest rates fell by about 3/8 of a discount point.

The inflation data will be the most important release this week. The recent inflation reports were mixed. The PCE price index will be carefully watched for any signs of inflationary pressures. The bond market will close early Thursday in advance of the Christmas holiday Friday. The shortened trading week may result in some market fluctuation.

Mixed Message
Last week, the Federal Reserve left interest rates unchanged. The remarks were mixed and caused some mortgage market uncertainty. The Fed statement indicated, “subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period. To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve is in the process of purchasing $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt. In order to promote a smooth transition in markets, the Committee is gradually slowing the pace of these purchases, and it anticipates that these transactions will be executed by the end of the first quarter of 2010. The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets.”

The Fed’s challenge will be stepping out of the mortgage market without causing mortgage interest rates to spike uncontrollably higher. The housing sector is a vital component of the economy. The last thing the Fed needs is for mortgage interest rates to escalate causing the housing sector to suffer. While the most recent data shows positive housing trends across most of the nation, analysts attribute the positive movements to artificially low mortgage interest rates tied to the Fed buying of mortgage bonds. As always, it’s best to jump on the boat while you can and take advantage of historically low rates.

Market Comment
Mortgage bond prices rose last week pushing mortgage interest rates lower. The economic data continues to be mixed. Personal income, outlays, and PCE inflation data were stronger than expected. Thin trading conditions, news of the looming debt crisis in Dubai and a continued influx of Fed money into the mortgage bond market helped rates improve.

Interest rates finished the week improved by about 1/2 of a discount point.

There will be many important economic releases this week, such as the employment report. Significant reports often lead to market volatility. Be alert throughout the entire week.

Fed “Beige Book”
The Fed “Beige Book” is a summary of economic conditions from each of the 12 Federal Reserve regional districts. The release takes place eight times a year approximately two weeks ahead of each of the Federal Open Market Committee (FOMC) meetings. The report is used at the FOMC meetings, which tends to be one of the most influential events in the market.

Market participants are continually attempting to determine what FOMC interest rate policy will be ahead of the next meeting. Any deviation from expectations usually results in extreme short-term market fluctuation. The timing of the “Beige Book” provides analysts a valuable look at one of the many factors the FOMC considers in setting interest rate policy. If the “Beige Book” shows signs of inflationary pressures, the Fed’s ability to keep rates lower may be somewhat restricted. However, if the report shows signs of difficulties, the Fed may keep rates low to stimulate the economy.

The “Beige Book” release on Wednesday should provide market participants with valuable insight into what the Fed will do and how mortgage interest rates will respond in the short-term. Be cautious heading into this and the other important releases this week.

Market Comment


Mortgage bond prices rose last week, pushing mortgage interest rates lower. The data was mixed with stronger than expected consumer sentiment and a disappointing 5-year Treasury note auction. Strong foreign demand for the 7-year Treasury auction helped rates improve.

For the week, interest rates fell by about 1/4 of a discount point.

The employment report will take center stage this week. Consumer confidence, ADP employment, income, outlays, ISM Index, and factory orders data have the potential to move the financial markets. The recent economic data has been mixed. The bond market typically likes to see weaker figures with very little price pressures.

Good News


The housing sector of the economy has been hit hard during these troubled economic times. In an effort to stabilize, the Federal Reserve implemented a system to keep mortgage interest rates low through the purchasing of $1.25 trillion of mortgage-backed securities throughout this year. While the Fed has been effective at keeping mortgage interest rates at historically favorable levels, uncertainty looms regarding the future of rates after the Fed program ends.

The Fed provided some good news last week when they indicated the purchasing of mortgage bonds would be extended into the first quarter of 2010. Prior to the meeting, many thought the program would end at the end of 2009. The bad news is that they have not increased the amount to be spent as of yet. This still leaves much uncertainty and some view it as just a delay. The Fed also indicated that long term inflation expectations were stable. This is great news for fixed income securities and the stability of mortgage interest rates.

Don’t forget to check out the Monday morning “word of the day” on our Facebook page. The first email to perl@perlmortgage with the secret word receives a special prize.

Market Comment
Mortgage bond prices rose last week pushing mortgage interest rates lower. The US Treasury auctions went well with relatively strong foreign demand for most issues. The gains came as the Fed continued to pour billions into mortgage bonds in an effort to keep rates low. The data was mixed as weekly jobless claims came in better than expected and the Fed “Beige Book” indicated that inflation remained in check.

For the week, interest rates fell by about 3/8 of a discount point.

The consumer price index will be the most important data this week. If inflation indications are tame, rates will likely hold steady or improve. However, if inflation increases, mortgage interest rates could spike.

Business Inventories


The report on business inventories gives a broader look at the durable goods, factory orders, and retail sales reports. Not only is this report an important part of the investment component of the GDP, it also provides a peek into the economy in the upcoming months. Business inventory changes slow down as the economy approaches a peak, and rise as the economy approaches the trough of a recession. Therefore, the change in business inventories is a leading indicator of GDP. The data for this report, published by the Department of Commerce’s Census Bureau, comes from a monthly survey of inventories, orders, and manufacturers’ shipments, as well as merchant wholesalers and retail trade surveys.

Only a small amount of attention is typically paid to this report because much of the data is already available and surprises are rare. The only new information in this report is retail inventories. However, in this environment, every piece of data has the potential to cause some volatility.

The future of mortgage interest rates remains uncertain. It’s wise to take advantage of the recent improvements in rates.