Money Market News

Market Comment

Mortgage bond prices fell last week pushing mortgage interest rates considerably higher.  We were deluged with mostly better than expected data and strong stocks as the DOW eclipsed the 12,000 mark.  Weekly jobless claims printed at 415K, weaker than the expected 425K.  Revised Q4 productivity came in at 2.6%. Analysts were expecting productivity to rise 2.2%. Productivity is important for a business because it helps keep costs low. Factory orders rose 0.2%, stronger than the expected 0.6% decline.  That data pressured rates higher.  Mortgage bonds ended the week negative by a disappointing 7/8 of a discount point.

The Treasury auctions will factor heavily into trading this week.  If foreign demand falters rates could be adversely affected.

LOOKING AHEAD

Economic Indicator	Release Date & Time	Consensus Estimate	Analysis
Consumer Credit	Monday, Feb. 7, 3:00 pm, et	Up $1.1b	Low importance.  Significant strength may lead to lower mortgage interest rates.
3-year Treasury Note Auction	Tuesday, Feb. 8, 1:15 pm, et	None	Important.  $32 billion of notes will be auctioned.  Strong demand may lead to lower mortgage rates.
10-year Treasury Note Auction	Wednesday, Feb. 9, 1:15 pm, et	None	Important.  $24 billion of notes will be auctioned.  Strong demand may lead to lower mortgage rates.
Weekly Jobless Claims	Thursday, Feb. 10, 8:30 am, et	410k	Important.  An indication of employment.   Higher claims may result in lower rates.
30-year Treasury Bond Auction	Thursday, Feb. 10, 1:15 pm, et	None	Important.  $16 billion of bonds will be auctioned.  Strong demand may lead to lower mortgage rates.
Trade Data	Friday, Feb. 11, 8:30 am, et	$39b 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	Friday, Feb. 11, 10:00 am, et	74	Important.  An indication of consumers’ willingness to spend.  Weakness may lead to lower mortgage rates.

Auctions

US Treasury bonds do not directly dictate fixed mortgage interest rate pricing however they do have an indirect impact.   Both Treasuries and mortgage bonds often track in the same direction but this is not always the case.  There are many times that Treasuries and mortgage bonds move inversely.

Despite the overwhelming size of the US economy, foreign investors can still have an effect on moving the financial markets.  When foreign economies struggle foreign investors often purchase US based investments including mortgage bonds.  This demand usually causes mortgage bond prices to rise and interest rates to fall.  This flight to quality buying was one of the factors that helped mortgage interest rates remain historically low in years past.

There is a real threat that continued global economic turmoil might keep foreign investors from purchasing mortgage bonds in the future.  The Treasury auctions this week will be important in determining the current appetite of foreign investors for dollar denominated securities.  Demand has been generally good as of late but auctions of different durations often vary in their results.  If this week’s auctions are poorly bid mortgage bond prices could fall pressuring mortgage interest rates higher.  The inverse is also true.  Be cautious heading into the auctions.