Mortgage Rates and What May Move Them This Week, January 10, 2011

Last week did end up somewhat as anticipated, Bouncy - With the majority of the bounces being caused by the employment data. There were huge swings last week with an UGLY Wednesday private sector report that gave us a huge sell off only to be corrected the following 2 days with the Weekly and monthly Federal jobs reports that were actually not as good as anticipated. putting the week together we had another slightly negative week with Fannies losing about 8/32nds by the end of the week which equates to just a slight bump up for rates.

This week we have a big list on the calendar to keep an eye on:

• Monday, January 10: a No-News-Day with the credit markets looking towards stocks for direction. Mid Day we have Fannies up a bit as stocks are trading off just a bit. Remember, in the credit markets- PRICE UP = YIELD DOWN.
• Tuesday, January 11: First Auction of the New Year with the Treasury selling $32 Billion in 3 year notes. The combination of rates being at higher levels than previous auctions and the shorter term of this offering should make this a well bid auction leading towards steady rates.
• Wednesday, January 12: Auction #2 with $21 Billion in 10 Year notes. With this yield currently being in the 3.3% range we will likely see this auction go off pretty well. One of my favorite analysts thinks we may see the upward trend be reversed if this auction goes off with a yield below 3.25%, and that would help settle mortgage rates down.
• Wednesday: Fed releases the Beige Book. This report compiles all 12 Fed Districts together in one boring Beige colored report. Since this is a bunch of "known" reports compiled together it is doubtful that it will contain anything new that will move the markets.
• Thursday, January 13: December PPIexpected +0.8% with a core of +0.2%. As reported the core rate is "OK" but flirting on the edge of being too high for comfort levels in terms of inflation. If we get shocked by a stronger than anticipated report this one could push rates higher.
• Thursday: initial Jobless Claims expected down 5,000 to 404,000. This is one of the reports last week that was weaker than the forecast. Much of the weekly bouncing in employment data is likely due to holiday/seasonal activity and is not likely a great indicator of "health" in the jobs market. But we should still keep a close eye on this one, If we do see that number drop below 400k it might push rates higher.
• Thursday: Last auction of the week with $13 Billion in 30 year bonds. Now that the 30yr bonds are flirting with the mid 4's in yields it is likely this auction will be well bid and a well bid auction is likely to keep the mortgage world stable and may help us see a bit of improvement in rates as well.
• Friday, January 14: December CPI expected +0.4% with a core rate of +0.1%. As forecast this report is a healthy one, and a happy one for interest rates since it shows the core rate of inflation at the consumer level to be only 1.2%/yr. If by chance the core is reported to be .2% or higher it is likely to cause a sell off in the credit markets causing rates to move higher.
• Friday: December retail sales expected to be +0.8% excluding Autos +0.7%. This is a pretty strong forecast which is part of the reason we have interest rates climbing the past few months. Anything stronger than this forecast will put some upward pressure on interest rates.
• Friday: Industrial Production for December expected +0.5% and Capacity 75.6%. Production is up, but still at capacities that are well below the the point that will cause inflation. This should be a non event for the week.
• Monday January 17: The market is Closed for the Martin Luther King Holiday. This may cause some cautious trading on Friday the 14th since foreign markets will be open on Monday.

WHEW, that's a long list of info to chew on. The Billions in Treasuries to be digested in the markets are a concern. I am not overly worried about the 3yr auction - it is mostly the 10yr and then the 30 that have the biggest potential to push rates up. The wild card here will be foreign participation in the Auctions. It looks like National participation might be weak, so we may have to depend overseas activity here. Other than the auctions, the PPI and CPI reports are also ones to watch. I personally think inflation on the consumer level will be the most watched (CPI) since the American Consumer is about 70% of our economy. I would also be cautious as we near the end of the week. Any time we have a Monday Holiday we often see thin trading on Friday, and thin trading can cause the market to swing a bit more wildly.

The past couple of weeks we have seemed to settle more into a range for interest rates, flirting in the high 4's for a well qualified conventional borrower. I don't see anything that would lead me to believe we will see a big swing off this trend just yet, unless we get a big surprise in one of this week's reports.

Have a great week!

Rob

Robert Rauf

Mortgage Banker

NMLS ID# 248937

www.RobertRaufHomeLoans.com or my blog: http://activerain.com/blogs/rrauf

(732)223-1630 x102

RRauf@REMN.com

Since 1987 I have been helping my clients fulfill their dream of home ownership!

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