MARKET COMMENT Mortgage bond prices fell pushing mortgage interest rates higher last week. We started the week with some flight to quality buying as details of Ireland’s $113b bailout emerged. That was short-lived as stronger than expected consumer confidence, ADP employment, and construction spending data crushed the bond market mid-week causing interest rates to skyrocket. Fortunately the employment report Friday morning was bond friendly showing a higher than expected 9.8% unemployment rate and a weaker than expected payrolls increase. This helped the market recover about half of the weakness seen earlier in the week. Unfortunately for the week interest rates were worse by about 1/2 of a discount point.
Look for the Treasury auctions to be a main focus this week. If foreign demand remains decent rates should stay in check.
- 3-year Treasury Note Auction; Dec. 7; Important. $32 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
- Consumer Credit; Dec. 7; Consensus Estimate Down $3b; Low importance. A significant increase may lead to lower mortgage interest rates.
- 10-year Treasury Note Auction; Dec. 8; Important. $21 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
- 30-year Treasury Bond Auction; Dec. 9; Important. $13 billion of bonds will be auctioned. Strong demand may lead to lower mortgage rates.
- Trade Data; Dec. 10; Consensus Estimate $44b deficit; Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates.
- U of Michigan Consumer Sentiment; Dec. 10; Consensus Estimate 72; Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.
CONSUMER SENTIMENT In the US the consumer is often seen as the driving force of the economy. A large percentage of the total economic output is for personal use. Analysts attempt to predict the future spending patterns of consumers to gauge economic activity.
The Michigan consumer sentiment index is one piece of data used to measure consumer attitudes. The index is derived from a telephone survey, which gathers information on consumer expectations of the overall economy. The preliminary report is released around the 10th of each month and then is revised throughout the remainder of the month. It is significant in that it provides a precursor into consumers’ willingness to spend in the months ahead. However, many analysts point out that willingness to spend does not always convert to actual expenditures.
Despite economic uncertainty, liquidity issues, housing market weakness, and high energy costs, American consumers continue to spend. However, many analysts question whether consumers can continue to buoy the economy. The most recent sentiment data came in the highest level in 5 months. This week’s release will be eagerly anticipated. Look for any variation from estimates to cause mortgage interest rate volatility. Signs of eroding consumer confidence could lead to improvements in mortgage interest rates. However, stronger than expected figures could spike rates higher.
Remember that mortgage interest rates remain historically favorable and are subject to change on a daily basis. Last week was a prime example of the volatility often associated with economic data releases.