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Market Comment for Week of October 25, 2010…

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MARKET COMMENT   Mortgage bond prices ended the week higher pushing mortgage interest rates lower. We had a week of very mixed data. Industrial production data was weaker than expected which was generally bond friendly to start the week. Stronger than expected housing starts data Tuesday was not what the bond market was looking for but the reaction was muted. Significant stock weakness Wednesday helped mortgage bonds finish the day in positive territory. This was followed by lower than expected weekly jobless claims Thursday. Fortunately mortgage bonds were positive overall for the week. Rates finished the week generally about 1/4 of a discount point lower. 

The Treasury auctions will be carefully watched this week. If foreign demand remains solid rates should hold steady.


  • Existing Home Sales; Oct. 25; Consensus Estimate 4.23m; Low importance. An indication of mortgage credit demand. Significant weakness may lead to lower rates.
  • Consumer Confidence; Oct. 26; Consensus Estimate 50; Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.
  • 2-year Treasury Note Auction; Oct. 26; Important. $35 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
  • Durable Goods Orders; Oct. 27; Consensus Estimate Up 0.8%; Important. An indication of the demand for “big ticket” items. Weakness may lead to lower rates.
  • New Home Sales; Oct. 27; Consensus Estimate 300k; Important. An indication of economic strength and credit demand. Weakness may lead to lower rates.
  • 5-year Treasury Note Auction; Oct. 27; Important. $35 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
  • Q3 Advanced GDP; Oct. 28; Consensus Estimate Up 2.4%; Very important. The aggregate measure of US economic production. Weakness may lead to lower rates.
  • 7-year Treasury Note Auction; Oct. 28; Important. $29 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
  • Q3 Employment Cost Index; Oct. 29; Consensus Estimate Up 0.5%; Very important. A measure of wage inflation. Weakness may lead to lower rates.
  • U of Michigan Consumer Sentiment; Oct. 29; Consensus Estimate 68.5; Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.

EMPLOYMENT COST INDEX   The employment cost index is a quarterly report issued by the Department of Labor. The report measures the growth of wages, salaries, and benefits costs over a certain period of time. Though ECI figures are usually weeks old, the data remains the best indicator of employment price pressures considering it factors employees’ total compensation. 

If wage pressures become evident, higher expectations of inflation also tend to arise. However, increasing compensation does not necessarily lead to increased inflationary pressures. Oftentimes, increased productivity enables employers to increase compensation without increasing the costs of their goods or services. Be cautious heading into this release. 

Source: Courtesy of Todd Kabel, US Bank, Nashville, Tennessee.

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