MARKET COMMENT Mortgage bond prices started in negative territory and that carried through most of the week. Spain and Portugal had relatively successful bond auctions, which reversed the flight to quality buying of US debt instruments that helped rates fall. Lower than expected weekly jobless claims Thursday added to the losses causing rates to spike higher. Analysts were looking for jobless claims at 425k and the actual release showed claims at 404k. Leading economic indicators were higher than expected with an increase of 1% compared to the anticipated 0.6% increase. Mortgage bonds ended the week negative by about a full discount point.
The Fed meeting will take center stage this week. Look for the continued Treasury auctions to also factor into mortgage interest rate changes.
- Consumer Confidence; Jan. 25; Consensus Estimate 54.2; Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.
- 2-year Treasury Note Auction; Jan. 25; Important. $35 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
- New Home Sales; Jan. 26; Consensus Estimate 300k; Important. An indication of economic strength and credit demand. Weakness may lead to lower rates.
- 5-year Treasury Note Auction; Jan. 26; Important. $35 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
- Fed Meeting Adjourns; Jan. 26; Important. Few expect the Fed to change rates, but volatility may surround the adjournment of this meeting.
- Weekly Jobless Claims; Jan. 27; Consensus Estimate 425k; Important. An indication of employment. Higher claims may result in lower rates.
- Durable Goods Orders; Jan. 27; Consensus Estimate 1.9%; Important. An indication of the demand for “big ticket” items. Weakness may lead to lower rates.
- 7-year Treasury Note Auction; Jan. 27; Important. $29 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
- Advance Q4 GDP; Jan. 28; Consensus Estimate 3.8%; Very important. The aggregate measure of US economic production. Weakness may lead to lower rates.
- Q4. Employment Cost Index; Jan. 28; Consensus Estimate 0.4%; Very important. A measure of wage inflation. Weaker figure may lead to lower rates.
FED FOCUS The United States central bank, the Federal Reserve, coordinates the borrowing and lending activities of federally chartered banks. The principal reason the Federal Reserve was created was to reduce severe financial crises. One way of accomplishing this goal is to control the amount of money that flows through the economy. By manipulating the US money supply, the Fed influences inflation, unemployment, and the level of US economic activity. The Fed has a variety of tools that it uses to control the money supply, but its chief policy tool is the manipulation of short-term interest rates.
No rate changes are expected at the Wednesday meeting but there is concern about the future considering the Dallas and Kansas City Federal Reserve banks requested a discount point hike.