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Market Comment for Week of November 21, 2011…

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MARKET COMMENT Mortgage bond prices ended lower last week, which pushed mortgage interest rates slightly higher. The producer price index and core rate both came in lower than expected and helped rates improve earlier in the week. Unfortunately, retail sales beat expectations which countered the PPI data. Poor auctions in France and Spain fanned the Euro debt concerns which helped rates a bit. However, housing starts showed a surprise increase and weekly jobless claims were lower than expected Thursday which didn’t help rates. Positive stocks Friday morning also made it tough for rates to push lower. Mortgage interest rates rose by approximately 1/8 of a discount point for the week.

LOOKING AHEAD

• 2-year Treasury Note Auction; Nov. 21; Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.
• Q3 GDP Second Estimate; Nov. 22; Consensus Estimate Up 2.5%; Very important. The aggregate measure of US economic production. Weakness may lead to lower rates.
• Fed Minutes; Nov. 22; Important. Details of the last Fed meeting will be thoroughly analyzed.
• 5-year Treasury Note Auction; Nov. 22; Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.
• Weekly Jobless Claims; Nov. 23; Consensus Estimate 390k; Important. An indication of employment. Higher claims may result in lower rates.
• Personal Income and Outlays; Nov. 23; Consensus Estimate Up 0.1%, Up 0.3%; Important. A measure of consumers’ ability to spend. Weakness may lead to lower mortgage rates.
• PCE Core Inflation; Nov. 23; Consensus Estimate Up 0.1%; Important. A measure of price increases for all domestic personal consumption. Weaker figure may help rates improve.
• Durable Goods Orders; Nov. 23; Consensus Estimate Down 0.2%; Important. An indication of the demand for “big ticket” items. Weakness may lead to lower rates.
• U of Michigan Consumer Sentiment; Nov. 23; Consensus Estimate 63; Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.
• 7-year Treasury Note Auction; Nov. 23; Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.

QUALITY Investors are constantly searching for opportunities that will provide the greatest return with the least amount of acceptable risk. Investment products inherently all possess some sort of risk. As foreign financial markets struggled recently, many market participants withdrew their funds and searched for a safe haven in the US financial markets. With the backing of the US Government, investors viewed the US Treasury and mortgage bond markets as less risky investment opportunities amid global economic uncertainty. This resulted in an increased demand for US investments, such as the mortgage-backed securities that affect mortgage interest rates. Increased demand for mortgage bonds drove the prices higher and interest rates lower. Whether or not the trend will continue is still debated. A cautious approach to lock decisions is wise to take advantage of mortgage interest rates at these historically favorable levels.

Source: F&M Mortgage, Todd Kabel; MMIS, Rate Link; Blog distribution provided by Kenneth Bargers and Bargers Solutions, a proud member of Pilkerton Realtors, residential real estate services located in Nashville, Tennessee

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Market Comment for Week of November 7, 2011…

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MARKET COMMENT Mortgage bond prices ended higher last week, which pushed mortgage interest rates lower. The financial markets remained extremely volatile. Most of the rate improvements came early in the week following Japan’s intervention to weaken the yen and Greek Prime Minister Papandreou’s indication that budget cuts would be put to a public vote. Unfortunately some of those rate improvements were erased when Papandreou retreated on the vote and the European Central Bank made a surprise rate cut. The employment report was mixed with the headline figure of 9% coming in lower than estimates while non-farm payrolls were weaker than expected. Despite the wild swings, mortgage interest rates fell by almost a full discount point for the week.

LOOKING AHEAD

• Consumer Credit; Nov. 7; Consensus Estimate $9.56b; Low importance. A significantly large increase may lead to lower mortgage interest rates.
• 3-year Treasury Note Auction; Nov. 8; Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.
• 10-year Treasury Note Auction; Nov. 9; Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.
• Weekly Jobless Claims; Nov. 10; Consensus Estimate 395k; Important. An indication of employment. Higher claims may result in lower rates.
• Trade Data; Nov. 10; Consensus Estimate $45b deficit; Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates.
• 30-year Treasury Bond Auction; Nov. 10; Important. Bonds will be auctioned. Strong demand may lead to lower mortgage rates.
• U of Michigan Consumer Sentiment; Nov. 11; Consensus Estimate 60.5; Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.

TRADE DATA In the distant past the US economy tended to be viewed as relatively unaffected by economic activity in other countries. However, increased trades with other countries and an increased reliance on foreign purchases of US debt have generated a market awareness of trade-related issues. The exchange rate of the dollar and foreign trade flows are interrelated. One must buy dollars to purchase US exports, and sell dollars to buy imports. Likewise, foreign investment in US debt requires the purchase of US dollars, and is thus affected by exchange rates.

Each month the Commerce Department gathers an enormous amount of detailed data on exports and imports. The data is broken between goods and services trade. The overall trade balance is the dollar difference between US exports and imports on a seasonally adjusted basis. The report also highlights trade flows between the US and various partners. Since the mid-1970’s, US imports of consumer and capital goods have exceeded exports, so a merchandise trade deficit has existed. The US has always maintained a service trade surplus, and because this surplus is not enough to offset the merchandise trade deficit, a net export deficit has resulted.

Due to the overwhelming amount of data considered, trade is difficult to forecast, and can present surprises. For a variety of reasons, the financial markets will often be unaffected by surprises in trade data. However, the data still has the ability to cause mortgage interest rate volatility.

Source: F&M Mortgage, Todd Kabel; Rate Link, MMIS; Blog distribution provided by Kenneth Bargers and Bargers Solutions, a proud member of Pilkerton Realtors, residential real estate services located in Nashville, Tennessee

Market Comment for Week of May 16, 2011…

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MARKET COMMENT   Mortgage bond prices rose last week pushing mortgage interest rates slightly lower. We started the week positive when it was announced Greek’s debt rating was downgraded. Retails sales were slightly lower than expected. Inflation readings on the producer side were slightly higher than expected as prices rose 0.8% and the core rose 0.3%. Consumer prices rose 0.4% and the core rate, which excludes the volatile food and energy costs, rose 0.2%. The core value was higher than expected mirroring PPI earlier in the week. Unfortunately the 30-year auction results showed poor demand that caused the bond market to fall and rates to rise Thursday afternoon. Mortgage bonds ended the week better by about 1/4 of a discount point. 

LOOKING AHEAD 

  • Housing Starts; May 17; Consensus Estimate 529K; Important. A measure of housing sector strength. Weakness may lead to lower rates.
  • Industrial Production; May 17; Consensus Estimate +0.6%; Important. A measure of manufacturing sector strength. Weakness may lead to lower rates.
  • Capacity Utilization; May 17; Consensus Estimate 76.2; Important. A figure above 85% is viewed as inflationary. Weakness may lead to lower rates.
  • Weekly Jobless Claims; May 19; Consensus Estimate 440k; Important. An indication of employment. Higher claims may result in lower rates.
  • Existing Home Sales; May 19; Consensus Estimate 5.10M; Low importance. An indication of mortgage credit demand. Significant weakness may lead to lower rates.
  • Philadelphia Fed Survey; May 19; Consensus Estimate 19.2; Moderately important. A survey of business conditions in the Northeast. Weakness may lead to lower rates.
  • Leading Economic Indicators; May 19; Consensus Estimate +0.5%; Important. An indication of future economic activity. Weakness may lead to lower rates.
  • 10-year TIPS Treasury Note Auction; May 19; Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.

A SURE THING   While nobody can accurately predict what the future holds for mortgage interest rates, the fact remains that they are historically low. It is difficult to justify the risk in floating when the excellent rates currently available are a sure thing. 

Timing is one of the most important factors in success. Unfortunately, knowing the perfect time to lock in a loan is impossible until after the fact. While analysts constantly try to predict the future, the bottom line is they continually fall short in terms of accuracy. Recent history is a testament to this. At the end of last year analysts overwhelming predicted low rates for the months ahead. The first quarter of this year saw rates generally increase. Fortunately there has been a recent reprieve but things still remain volatile. The movements over the past 5 months show the challenge of making predictions. 

The good news is that the current low interest rates are here now. It is possible for rates to improve. However, if rates move higher, they are likely to spike fast and furiously with inflation fears looming. A cautious approach is necessary to protect against market volatility. 

Source: Todd Kabel, F&M Mortgage; Blog distribution provided by Kenneth Bargers and Bargers Solutions residential real estate services, a proud member of Pilkerton Realtors, located in Nashville, Tennessee

Market Comment for Week of May 9, 2011…

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MARKET COMMENT   Mortgage bond prices rose last week pushing mortgage interest rates lower. We were positive throughout most of the week as stocks struggled and oil prices fell. The ADP employment figure was lower than expected and weekly jobless claims were higher than expected which generally helped mortgage bonds. Unfortunately the payrolls component of the employment report Friday morning surprised to the upside and some of the earlier improvements were erased. Mortgage bonds ended the week better by about 1/4 of a discount point. 

The inflation data will take center stage this week. Any surprises to the upside on the consumer or producer sides will likely put upward pressure on rates. Foreign demand for the auctions this week will also be important. 

LOOKING AHEAD 

  • 3-year Treasury Note Auction; May 10; Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.
  • Trade Data; May 11; Consensus Estimate $45.5b deficit; Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates.
  • 10-year Treasury Note Auction; May 11; Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.
  • Weekly Jobless Claims; May 12; Consensus Estimate 455k; Important. An indication of employment. Higher claims may result in lower rates.
  • Producer Price Index; May 12; Consensus Estimate Up 0.6%, Core up 0.4%; Important. An indication of inflationary pressures at the producer level. Weaker figures may lead to lower rates.
  • Retail Sales; May 12; Consensus Estimate Up 0.3%; Important. A measure of consumer demand. A smaller than expected increase may lead to lower mortgage rates.
  • 30-year Treasury Bond Auction; May 12; Important. Bonds will be auctioned. Strong demand may lead to lower mortgage rates.
  • Consumer Price Index; May 13; Consensus Estimate Up 0.6%, Core up 0.2%; Important. A measure of inflation at the consumer level. Weaker figures may lead to lower rates.
  • U of Michigan Consumer Sentiment; May 13; Consensus Estimate 69.5; Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.

CONSUMER PRICE INDEX  The Consumer Price Index is widely accepted as the most important measure of inflation. The CPI is a measure of prices at the consumer level for a fixed basket of goods and services. The National Statistics Office and the Bureau of Agricultural Statistics of the Department of Agriculture collect price data for the computation of the CPI. Since it is an index number, it compares the level of prices to a base period. By comparing the level of the index at two different points in time, analysts can determine how much prices have risen in that period. Unlike other measures of inflation, which only factor domestically produced goods; the CPI takes into account imported goods as well. This is important due to the ever-increasing reliance of the US economy upon imported goods. Analysts primarily focus on the core rate of the CPI which factors out the more volatile food and energy prices. Record debt levels continue to weigh heavily upon the financial markets. The Fed has tried to pump up the economy but in doing so has stoked inflation fears. 

Source: Todd Kabel, F&M Mortgage; Blog distribution provided by Kenneth Bargers and Bargers Solutions residential real estate services located in Nashville, Tennessee

Market Comment for Week of December 27, 2010…

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MARKET COMMENT   Mortgage bond prices started the week in positive territory. Unfortunately those gains were short-lived as trading was thin and choppy with continued large market swings. Most of the data was neutral. We received some positive news that inflation remained in check as the PCE core came in up 0.1% exactly as expected. As the economy improves inflation will become a focal point for investors. Mortgage bonds ended the week slightly positive by about a 1/8 of a discount point. 

Look for the possibility of volatility amid likely thin trading conditions and a shortened trading week. The bond market will close early Friday afternoon ahead of the New Year’s holiday. 

LOOKING AHEAD 

  • 2-year Treasury Note Auction; Dec. 27; Important. $35 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
  • Consumer Confidence; Dec. 28; Consensus Estimate 56; Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.
  • 5-year Treasury Note Auction; Dec. 28; Important. $35 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
  • 7-year Treasury Note Auction; Dec. 29; Important. $29 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
  • Weekly Jobless Claims; Dec. 30; Consensus Estimate 423k; Important. An indication of employment. Higher claims may result in lower rates.

FOREIGN DEMAND   China is the largest foreign holder of US debt and continues to debate future purchases. Recent talk from China indicates a desire to diversify. Many stories hit the wires last week indicating that diversification may take the form of European debt purchases. A Chinese spokesperson told reporters that the EU will “be one of the major markets for our (future) forex investment.” These remarks caused some weakness in the US debt market Thursday. The concerns were eventually calmed but uncertainties remain regarding the future of the entire US debt market. 

Global investors are constantly searching for opportunities that will provide the greatest return with the least amount of acceptable risk. That is one of the major problems with China investing in EU debt. While the higher rates of return are enticing, they are not without considerably higher risk. 

Investment products inherently all possess some sort of risk. As global financial markets struggled, many market participants searched for a safe haven in the US financial markets even with their shortcomings. With the backing of the US Government, investors viewed the US Treasury and mortgage bond markets as less risky investment opportunities amid global economic uncertainty. This resulted in an increased demand for US investments, such as the mortgage-backed securities that affect mortgage interest rates. Increased demand for mortgage bonds moved prices higher and interest rates lower. A reversal of this foreign demand has and may continue to result in future spikes in mortgage interest rates. 

Caution is the key heading into the auctions this week. There is a real possibility of wild market swings with thin trading conditions likely. Mortgage interest rates remain historically favorable. The future remains uncertain. Today’s rates are a given. Lower rates are not a given as is evident from the overall upward trend seen the past few months. 

Source: Todd Kabel, US Bank; blog distribution provided by Kenneth Bargers and Bargers Solutions residential real estate services located in Nashville, Tennessee

Market Comment for Week of August 23, 2010…

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MARKET COMMENT   Mortgage bond prices rose last week helping recover some of the recent losses. We started the week with weaker stocks helping the mortgage bond market. Overall trading was choppy with data coming in all over the place. Higher than expected core producer price index data mid week helped erase most of the Monday morning improvements. This was countered by higher than expected jobless claims Thursday that pressured stocks lower. The jobless numbers remain troublesome. It is difficult for the economy to expand with a return of some jobs. Rates fell by about 1/8 of a discount point for the week. 

The GDP data will be the most important release this week. The Treasury auctions will continue to receive focus as record debt continues to hit the financial markets. 

LOOKING AHEAD 

  • Existing Home Sales; Aug. 24; Consensus Estimate Down 4.3%; Low importance. An indication of mortgage credit demand. A significant decrease may lead to lower rates.
  • 2-year Treasury Note Auction; Aug. 24; Consensus Estimate None; Important. $37 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
  • Durable Goods Orders; Aug. 25; Consensus Estimate Up 3.0%; Important. An indication of the demand for “big ticket” items. Weakness may lead to lower rates.
  • New Home Sales; Aug. 25; Consensus Estimate Up 2.4%; Important. An indication of economic strength and credit demand. Weakness may lead to lower rates.
  • 5-year Treasury Note Auction; Aug. 25; Consensus Estimate None; Important. $36 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
  • Weekly Jobless Claims; Aug. 26; Consensus Estimate 530k; Important. An indication of employment. An increase in jobless claims may bring lower rates.
  • 7-year Treasury Note Auction; Aug. 26; Consensus Estimate None; Important. $29 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
  • Q2 GDP second revision; Aug. 27 Consensus Estimate Up 1.4%; Important. The aggregate measure of US economic production. Weakness may lead to lower rates.
  • U of Michigan Consumer Sentiment; Aug. 27; Consensus Estimate 70; Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.

BAILOUT   It was August 2007 when rates on jumbo loans disconnected from reality and skyrocketed. This was the beginning of the credit crisis, which to some extent has touched everybody on planet earth. 

Since then we have been through trillion dollar bailouts, a near collapse of the banking and automotive industries, a stock market in freefall and house prices not too far behind. Stocks have recovered somewhat, and in some places housing is showing some life as well. Most economic pundits believe that we are not out of the woods and things may become worse before they get better. The good news is that through actions from the Federal Reserve interest rates are at all time lows, presenting an opportunity for many homeowners to receive a self funded bailout by dramatically reducing the interest rate on their mortgage. Nobody knows how low rates will go but there is certainty that rates are at historic lows and they will not last forever. Saving money today makes a lot of sense in these difficult and uncertain times. 

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

Market Comment for Week of May 10, 2010…

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MARKET COMMENT   Mortgage bond prices rose last week pushing mortgage interest rates lower. Trading was once again dominated by foreign influences as the Greek debt concerns spread across the globe. US stocks fell precipitously Thursday afternoon. At one point the DOW was down over 900 points. This sent a flood of investor funds into mortgage bonds helping rates improve. The data for the week was mixed with higher than expected unemployment and a larger than expected payrolls figure. Oil prices fell to around $77/barrel, which helped alleviate inflation concerns. Rates fell by about 3/4 of a discount point for the week. 

The retail sales data Friday will be the most important event this week. The Treasury auctions will also take center stage as market participants cautiously await the result to determine foreign investor appetite for US debt instruments. 

LOOKING AHEAD 

  • 3-year Treasury Note Auction; May 11; Consensus Estimate None; Important. $38 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
  • Trade Data; May 12; Consensus Estimate $39.5 billion deficit; Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates.
  • 10-year Treasury Note Auction; May 12; Consensus Estimate None; Important. $24 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
  • Weekly Jobless Claims; May 13; Consensus Estimate 410k; Moderately important. An increase in claims may bring lower rates.
  • 30-year Treasury Bond Auction; May 13; Consensus Estimate None; Important. $16 billion of bonds will be auctioned. Strong demand may lead to lower mortgage rates.
  • Retail Sales; May 14; Consensus Estimate Up 0.4%; Important. A measure of consumer demand. A smaller than expected increase may lead to lower mortgage rates.
  • Industrial Production; May 14; Consensus Estimate Up 0.5%; Important. A measure of manufacturing sector strength. A lower than expected increase may lead to lower rates.
  • Capacity Utilization; May 14; Consensus Estimate 73.3%; Important. A figure above 85% is viewed as inflationary. A decrease may lead to lower mortgage interest rates.
  • U of Michigan Consumer Sentiment; May 14; Consensus Estimate 73; Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.

GLOBAL UNCERTAINTY   The inability of Greece to pay their debt continues to result in economic uncertainty across the globe. The recent announcement that Greece would receive aid from the other Euro members initially resulted in some stability. However, the aid package didn’t erase the concern that Greece could still default and the contagion may spread to other countries. 

The positive for US dollar-denominated securities is the flight to quality buying that often occurs with the turmoil abroad. Investors often exit troubled markets and pour their money into US securities such as mortgage bonds. This pushes mortgage bond prices higher causing rates to fall in the short term. Unfortunately the improvements can evaporate just as quickly as they appear if the inverse flight occurs. With that in mind be cautious in the event the wild market swings continue. 

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

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