Mc Henry, MD

Market Comment

Mortgage bond prices rose last week applying downward pressure on mortgage interest rates. The bond market got a boost from the Fed announcement (read below) to buy more mortgage debt. There was some profit taking in bonds Thursday afternoon following the run-up in prices Wednesday. Higher than expected core readings of the consumer and producer price indices reignited some inflation concerns. 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 fell by about 1/2 of a discount point.

The Treasury auctions will once again take center stage this week as additional debt supply hits the market. Durable goods orders and consumer sentiment data will be important.

LOOKING AHEAD

Additional Fed Money

Last week the Federal Reserve announced it would pump another $750 billion into purchasing more mortgage-backed securities, the bonds that directly dictate 30 year and 15 year fixed rate Government and Conventional mortgage interest rates. This is in addition to the $500 billion being used between January and June to drive mortgage interest rates lower and help stimulate the economy.

So far the Fed has been able to keep mortgage interest rates relatively low while not destroying the functioning secondary market where investors buy and sell mortgage bonds. The potential negative is that the Fed has become the primary purchaser of these bonds. In the short term take advantage of these advantageous rates. There is uncertainty how things will play out once the Fed begins to unwind those positions in the futures.

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Copyright 2009. All Rights Reserved. Mortgage Market Information Services, Inc. www.ratelink.com The information contained herein is believed to be accurate, however no representation or warranties are written or implied.

Market Comment

Mortgage bond prices rose last 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 fell by about 1/4 of a discount point.

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 this week.

LOOKING AHEAD

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.

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Copyright 2009. All Rights Reserved. Mortgage Market Information Services, Inc. www.ratelink.com The information contained herein is believed to be accurate, however no representation or warranties are written or implied.