Market Comment
Mortgage bond prices were near unchanged last week holding mortgage rates steady. Trade was extremely volatile with swings of 1/2% in discount points common. The Treasury auctions were not as well received by foreign accounts as traders had hoped. The US relies on foreign central banks such as China to fund our deficit spending. If China were to decrease or cease purchasing US bonds and notes, rates would rise.

Interest rates finished the week near unchanged.

The inflation data will be the most important releases this week. Inflation erodes the value of fixed income securities causing prices to fall and rates to rise. The Fed meeting will also take center stage. While no rates changes are expected the wording of the release will be very important.

Trading Conditions
As we all know, mortgage interest rates change on a daily and intra-day basis. With so much fluctuation, it is often difficult to make the right decision regarding floating or locking. However, there is a difference between gambling and taking a calculated risk when making mortgage interest rate decisions. Floating into an economic release such as the employment report is usually a gamble, as was evident with the rate spike the beginning of this month. In addition, floating over a span of more than a few days is also a gamble. Unforeseen events can cause instability in the financial markets that result in mortgage interest rate fluctuation. On the contrary, floating on a day of positive market movement with no economic data the following day, while such action is still vulnerable to market movements, can be considered a calculated risk. Taking advantage of rates at the current levels ensures a historically favorable interest rate and protects against uncertainty surrounding future interest rate developments.

Market Comment
Mortgage bond prices fell last week pushing mortgage interest rates significantly higher. We saw selling pressure almost the entire week as housing and factory orders data was stronger than expected, the Fed Chairman mentioned rate hikes, and weekly jobless claims beat estimates. To top the already negative week, the employment report came in stronger than expected causing rates to spike even higher Friday morning.

Interest rates finished the week worse by about 1 and 1/2-discount points.

The continued Treasury auctions will gain a lot of attention this week. If foreign demand for the debt is weak, we could see rates head higher. The first portion of the week is light regarding economic releases, but the trade data Thursday and retail sales data Friday have the potential to result in mortgage interest rate fluctuation. Be alert throughout the entire week.

Are Rate Hikes Coming?
The biggest fear of bondholders is inflation. Real or perceived, inflation erodes the value of fixed income securities causing prices fall and rates to rise. And the housing sector of the economy would certainly not benefit from escalating mortgage interest rates. Unfortunately comments from Fed Chairman Bernanke have many traders concerned that rate hikes are on the way. Bernanke indicated the Fed would follow a “rolling exit process”, in which special programs run down and ultimately implement a tightening policy. He went on to mention raising rates and indicated the Fed will cut back and close emergency lending programs as the markets normalize. The reaction to these remarks was fast and furious as mortgage interest rates shot higher.

While it is almost inevitable that the Fed will eventually raise rates, no one knows when that will occur. However, many traders took Bernanke’s remarks as a warning of things to come sooner rather than later.

Despite the recent rate increases last week, rates remain historically favorable. Lower rates are not guaranteed and floating in this environment is very risky.

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. Mixed data resulted in up and down trading but within a relatively narrow range. The first part of the week was positive with rates improving, but declined on Wednesday when the consumer price index and the core came in higher than expected. Inflation, real or perceived, erodes the value of fixed income investments causing prices to fall and rates to rise. We saw some of that mid-week.

Despite this, interest rates finished the week improved by about 1/8 to 1/4 of a discount point.

The US Treasury will continue the record Treasury auctions with a $44 billion 2-year note auction Monday, $42 billion 5-year note auction Tuesday, and a $45 billion 7-year note auction Wednesday. The bond market will be closed Thursday for Thanksgiving and will have a shortened trading session Friday.

Preliminary GDP
The Gross Domestic Product (GDP) is one the most important reports during any given quarter. GDP is a measure of US economic output and spending. The report is significant in that it provides investors, analysts, traders, and economists with a comprehensive report of the direction of the economy. In addition, it also influences the decisions of Federal Reserve policy makers, Congressional budget employees, and corporate financial planners.

GDP is the sum total of goods and services produced by the United States. The initial report is often based on incomplete data. Therefore, additional revisions are released over the following two months. There are often substantial differences between the initial release and the revisions. The mortgage-backed security market generally responds favorably to weaker GDP growth. The preliminary third quarter gross domestic product data this week has the potential to move mortgage interest rates. Be cautious.

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.