Carol Wills

Market Comment

Mortgage bond prices had the worst week in a very long time falling precipitously pushing mortgage interest rates considerably higher. Stronger than expected consumer sentiment data started the bond market off on the wrong foot. Debt supply concerns permeated throughout the financial markets with the US Treasury auctioning $100 billion of notes. Escalating oil prices added fuel to the fire. Fortunately it appeared the Fed finally stepped in to stop the bleeding towards the end of the week helping bonds recover a small portion of the large losses from earlier in the week. For the week interest rates rose by about 1 and 1/2 of a discount point.

The employment report Friday will be the most important release this week. If the data shows signs of economic recovery we could see rates pressured higher. However, signs of weakness may bode well for rate improvements.

LOOKING AHEAD

Productivity

Productivity is the rate at which goods or services are produced. It is most commonly defined in terms of labor, which is the contribution of people to the process. Labor costs represent about two thirds of the value of the output produced. The Bureau of Labor Statistics of the US Department of Labor releases the most widely cited productivity statistics quarterly and annually. Increased productivity is often credited for economic growth with little signs of inflation.

Productivity is significant in that as it increases, businesses can produce more with the same or less input. This wealth building effect is vital to the US economy. As productivity increases, the US economy generally performs better. As productivity decreases, the economy generally suffers.

While the bond market generally favors signs of weakness in the economy, bonds tolerate growth as long as the economic environment shows little or no inflationary pressures. Unfortunately, inflation fears have escalated as of late.

Keep in mind that rates remain very favorable. Now is a great time to avoid the uncertainty surrounding continued market volatility.

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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 fell last week applying upward pressure on mortgage interest rates. The bond market continued to come under pressure from significantly stronger stocks. The DOW shot towards the 8,000 mark despite data releases that showed continued economic weakness. Most worrisome were the many reports that indicated people continue to lose jobs. Consumers find it difficult to spend without a job or with the fear their job may be in peril. The weaker than expected consumer sentiment data provided evidence of that fear. For the week, interest rates on government and conventional loans rose by about 3/8's of a discount point.

The bond market closes early Thursday in advance of the market holiday Friday. The shortened trading week may result in mortgage interest rate volatility as traders position themselves ahead of the extended holiday weekend.

LOOKING AHEAD

Credit Demand

Inflation is typically the most important focus for the mortgage interest rate market. Inflation remains a concern as the Federal Government continues to print and spend money in an effort to spur the economy. Unfortunately, mortgage interest rates also continue to be pushed around by gyrating stocks and weak demand as performance uncertainty looms and the Fed has become the primary buyer of mortgage-backed securities. Most of the recent increases in interest rates have come following stronger stocks. The Fed continues to pump billions of dollars into the market to try to keep mortgage interest rates relatively low and steady. Up until this past week they have done a pretty good job of accomplishing that task. Remember, the Fed is not the only player in the game and selling pressure continues.

The level of interest rates reflects the balance between the supply of money from investors and the demand for money by borrowers. Rising inflationary expectations and uncertainty about the performance of the debt cause investors to require higher rates of return on investments to compensate for the erosion of the principal that eventually is returned to them or the risk of non-performance. Regardless of inflation levels, though, rising economic activity can increase the demand for investors' funds, and thereby lead to higher interest rates. Investors pulling money out of bonds and into stocks have recently pressured mortgage rates.

The demand for money diminishes as the economy struggles. The Fed lowers interest rates as an incentive to businesses and consumers to increase their borrowings. The Fed hopes manufacturers will increase their investments in plants, equipment and inventories and that consumers will push housing construction along with consumer spending and with that, consumer debt.

Analysts will monitor this week's consumer credit levels. There is much debate in the financial community about the future. Economists, market analysts, and traders all seem to have a different opinion about the future state of the economy and especially whether or not we have hit the bottom of the economic slide. One thing most market participants agree on is both the bond and stock markets are going to see additional volatility. Now is a great time to take advantage of rates at the still historically favorable levels.

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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 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.