Kenneth Bargers Blog

Market Commentary for the Week of November 9th

MARKET COMMENT
Mortgage bond prices were near unchanged for the week amid very choppy trading conditions. Stronger than expected factory orders and ISM Index data were generally not bond friendly and attributed to higher rates in the middle of the week. Fortunately the Fed indicated the continued desire to keep rates low for an extended period. In addition, higher than expected unemployment and more payroll losses than expected helped mortgage bonds rally Friday. For the week, interest rates finished near unchanged.

The record debt auctions Monday, Tuesday, and Thursday will once again take center stage as the Veterans holiday Wednesday splits the trading week in half. Strong foreign demand remains necessary for interest rates to stay relatively low. The trade data Friday will also be important.

TRADING THIS WEEK
Market conditions that often lead to mortgage interest rate volatility are thin trading and shortened trading weeks. If very few market participants are buying and selling bonds, the potential for short-term volatility is escalated. A large buyer or seller can execute trading orders that, without additional traders to buffer out the extreme buying or selling, can lead to swift market movements. In addition, shortened trading weeks have the potential to compress a week’s worth of trading into fewer days. Bond traders often take defensive positions ahead of weekends and holidays to guard against unforeseen events that could possibly jeopardize their investments. This positioning can be beneficial or detrimental to mortgage interest rates. If investors sell stocks and buy mortgage-backed securities, mortgage interest rates will improve. However, if investors sell mortgage-backed securities and hold cash positions, mortgage interest rates will rise.

Holidays can often result in volatility as trading resumes following the extended close. The Fed continues to state the goal of low interest rates for some time. It is hard to argue they have not been effective with that goal so far this year. That doesn’t mean we haven’t and won’t see any interest rate volatility. Recent history attests to spikes and drops in rates throughout the year even with the Fed pumping $1.25 trillion in mortgage bonds. The big unknown remains when and how the Fed will exit the market without severe disruptions. Fed officials admit the future remains uncertain.

This week could result in market swings that are favorable or negative in nature. Considering the heightened possibility for mortgage interest rate volatility, a cautious approach to interest rate exposure is prudent.

Courtesy of Todd Kabel, US Bank, Nashville Tennessee

November 9, 2009 - Posted by kbargers | economy, Nashville, real estate, tennessee | bargers solutions, Brentwood, economy, home buying, home selling, kenneth bargers, market, mortgage bonds, mortgage lender, mortgage rates, Nashville, prudential woodmont realty, real estate, realtor, tennessee, todd kabel, us bank