| Market Comment
Mortgage bond prices rose this week applying downward pressure on mortgage interest rates. The bond market as a whole absorbed the additional debt supply the Treasury issued. There were some surprises with the retail sales figure not being as weak as expected and significant stock strength. However, the Fed’s continued efforts to pump money into mortgage bonds helped keep mortgage interest rates favorable. For the week, interest rates on government and conventional loans were unchanged, or improved by 1/8 %. The Fed meeting Wednesday will take center stage. While the Fed is expected to leave rates unchanged their post meeting remarks will be carefully analyzed. The producer price index and consumer price index releases will be the most important data next week. LOOKING AHEAD | Economic
Indicator | Release
Date & Time | Consensus
Estimate |
Analysis
| | Industrial Production | Monday, March 16,
9:15 am, et | Down 1.2% | Important. A measure of manufacturing sector strength. Weakness may lead to lower rates. | | Capacity Utilization | Monday, March 16,
9:15 am, et | 71.1% | Important. A figure above 85% is viewed as inflationary. A decrease may lead to lower mortgage interest rates. | | Producer Price Index | Tuesday, March 17,
8:30 am, et | Up 0.4%,
Core up 0.1% | Important. An indication of inflationary pressures at the producer level. Lower figures may lead to lower rates. | | Housing Starts | Tuesday, March 17,
8:30 am, et | Down 2.8% | Important. A measure of housing sector strength. Larger than expected decrease may lead to lower rates. | | Consumer Price Index | Wednesday, March 18,
8:30 am, et | Up 0.3%,
Core up 0.1% | Important. A measure of inflation at the consumer level. Lower figures may lead to lower rates. | | Fed Meeting Adjourns | Wednesday, March 18,
2:15 pm, et | No change | Important. Few expect the change rates, but some volatility may surround the adjournment of this meeting. | | Leading Economic Indicators | Thursday, March 19,
10:00 am, et | Down 0.6% | Important. An indication of future economic activity. A smaller increase may lead to lower rates. | Foreign Demand
China's Premier expressed concerns last week about the US debt holdings they have. "We have made a huge amount of loans to the United States. Of course we are concerned about the safety of our assets. To be honest, I'm a little bit worried," Wen Jiabao said. "I would like to call on the United States to honor its words, stay a credible nation and ensure the safety of Chinese Assets." These remarks quickly caused panic in fixed income trading. The panic was eventually calmed but uncertainties were left regarding the future of the entire US debt market. China is the largest foreign holder of US debt and continues to debate future purchases. Global 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 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 moves prices higher and interest rates lower. A reversal of this foreign demand could result in rates spiking higher. Caution is the key. |
