Market Comment - Week of August 31st, 2009
Mortgage bond prices fell last week pushing mortgage interest rates higher. The gains we had mid week were basically erased as stocks remained strong. The DOW rose despite continued signs the labor market remained weak. Fortunately there were news reports indicating the Fed may continue the purchase of mortgage bonds into 2010 in an effort to keep rates relatively low. The last thing the Fed and the housing sector need are higher rates. The Fed continued to purchase billions of dollars worth of mortgage-backed securities but even with that rates remained volatile. For the week interest rates rose about 1/4 of a discount point.
The employment report Friday will be the most important data this week. ISM Index data and revised productivity data may also move the market. Continued stock strength may also pressure rates.
| Economic Factors | |||
| Economic Indicator | Release Date Time | Consensus Estimate | Analysis |
| Construction Spending | Tuesday, Sept. 1, 2009 | Down 0.2% | Low importance. An indication of economic strength. Significant weakness may lead to lower rates. |
| ISM Index | Tuesday, Sept. 1, 2009 | 50.2 | Important. A measure of manufacturer sentiment. A larger decline may lead to lower mortgage rates. |
| ADP Employment | Wednesday, Sept. 2, 2009 | -246k | Important. An indication of employment. A larger decrease in payrolls may bring lower rates. |
| Revised Q2 Productivity | Wednesday, Sept. 2, 2009 | Up 6.1% | Important. A measure of output per hour. Improvement may lead to lower mortgage rates. |
| Factory Orders | Wednesday, Sept. 2, 2009 | Up 1.5% | Important. A measure of manufacturing sector strength. Weakness may lead to lower rates. |
| Fed Minutes | Wednesday, Sept. 2, 2009 | None | Important. Details of the last Fed meeting will be thoroughly analyzed. |
| Employment | Friday, Sept. 4, 2009 | 9.5%, -225k | Very important. An increase in unemployment or a large decrease in payrolls may bring lower rates. |
Recent Volatility
The recent volatility in mortgage interest rates on a daily basis has been escalated by the increased Fed purchasing of mortgage bonds in an effort to combat rising mortgage rates along with uncertainty about how it all unwinds. The Fed's goal of keeping mortgage interest rates relatively low in an effort to help the ailing housing sector of the economy has been a challenge. Analysts called the recent ramp up in purchasing "surprising" as amounts have exceeded recent averages. The Fed purchased almost $800 billion of mortgage bonds so far this year and has stated a goal of spending $1.25 trillion on the program by the end of the year.
Different Fed officials have come out recently with what could be interpreted as conflicting positions on the program. Richmond Fed President Lacker told reporters recently, "Whether there is a so-called cliff effect or any disruption due to discontinuous change in our purchases is up in the air." Lacker also indicated, "I will be evaluating carefully whether we need or want the additional stimulus that purchasing the full amount authorized under our agency mortgage-backed securities purchase program would provide." On a slightly different note Atlanta Fed President Lockhart indicated the Fed would probably extend the timeframe of MBS purchases beyond the end of the year. The remarks now leave many questions. Will the Fed spend all of the slated money? Will the purchases take place before the end of the year or will they extend into 2010? With so much uncertainty, even among Fed officials, mortgage interest rate volatility is likely. The good news is rates still remain historically favorable.
