MARKET COMMENT Mortgage bond prices rose last week, which pushed mortgage interest rates sharply lower. Rates found support from both weak stocks and flight-to-safety buying as the debt problems in Europe extended to Italy and Spain. The DOW Jones index had one of the worst weeks in recent memory, falling 512 points on Thursday alone. Global traders flocked to US Treasuries and mortgage backed securities driving the yield on the 10-year bond down to 2.44%. Mortgage bonds ended the week better by about 1/4% in interest rate.
The Fed meeting will be the most important event this week. The Treasury auctions also have the potential to result in market volatility depending on foreign demand.
• Preliminary Q2 Productivity; Aug. 9; Consensus Estimate Up 4.0%; Important. A measure of output per hour. Improvement may lead to lower mortgage rates.
• 3-year Treasury Note Auction; Aug. 9; Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.
• Fed Meeting Adjourns; Aug. 9; Consensus Estimate No rate changes; Important. Few expect the Fed to change rates, but some volatility may surround the adjournment of this meeting.
• 10-year Treasury Note Auction; Aug. 10; Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.
• Weekly Jobless Claims; Aug. 11; Consensus Estimate 450k; Important. An indication of employment. Higher claims may result in lower rates.
• Trade Data; Aug. 11; Consensus Estimate 49.2B deficit; Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates.
• 30-year Treasury Bond; Aug. 11; Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.
• Retail Sales; Aug. 12; Consensus Estimate Up 0.1%; Important. A measure of consumer demand. Weakness may lead to lower mortgage rates.
• U of Michigan Consumer Sentiment; Aug. 12; Consensus Estimate 63.2; Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.
There is a Chinese proverb that states, “May you live in interesting times.” It is often argued that the word interesting is meant to be a synonym for turbulent or dangerous. This phrase hits the bull’s-eye given the current state of the financial markets. While stocks and bonds are swinging around wildly there is some good news. Interest rates for conforming and FHA/VA loans are historically very low.
Remember, low rates are not a given considering the uncertainty in the financial markets. Inflation, real or perceived, erodes the value of bonds causing bond prices to fall and rates to rise. The last thing the economy needs now is rising mortgage interest rates. If inflation emerges that very well may happen despite the continued Fed efforts to keep rates low. With so much uncertainty, a cautious approach to float lock decisions would be wise.
Source: Todd Kabel; F&M Mortgage; Blog distribution provided by Kenneth Bargers and Bargers Solutions, a proud member of Pilkerton Realtors, residential real estate services located in Nashville, Tennessee