Here is this upcoming week’s market forecast. The past two weeks have had very similar trading charts week over week, and for the most part have ended flat to slightly ahead. As for next week, there doesn’t look to be a whole lot until Thursday and Friday, in addition to everyone keeping a close eye on the Euro Debt Crisis.
Be sure to read the section titled “Disparity” under the graph for an interest breakdown on the difference between Treasuries and Mortgage Backed Securities (I am sure you can’t wait!). If nothing else, it will help you explain the difference if you get the question from those engineer-types
I am available all weekend, so please feel free to call me anytime on my cell with questions and quick pre-approvals!
Market Comment
Mortgage bond prices ended slightly higher last week, which pushed mortgage interest rates lower. Stocks were stronger as the DOW surged higher by 291 points Monday and 490 points Wednesday. The Fed stepped in to help the EU deal with their debt crisis through some liquidity moves along with the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank. The moves generally helped equities across the globe. Mortgage bonds traded in a choppy but tight pattern throughout the week despite the strength in equities. MBS were buoyed by remarks from German Chancellor Merkel which indicated there is no quick fix and the solution to the Euro debt crisis will take years. Mortgage bonds ended the week better by approximately 1/8 to 1/4 of a discount point.
LOOKING AHEAD
| Economic | Release | Consensus | |
| Factory Orders | Monday, Dec. 5, | Down 0.5% | Important. A measure of manufacturing sector strength. Weakness may lead to lower rates. |
| Consumer Credit | Wednesday, Dec. 7, | $7b | Low importance. A significantly large increase may lead to lower mortgage interest rates. |
| Weekly Jobless Claims | Thursday, Dec. 8, | 397k | Important. An indication of employment. Higher claims may result in lower rates. |
| Trade Data | Friday, Dec. 9, | $44.3b deficit | Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates. |
| U of Michigan Consumer Sentiment | Friday, Dec. 9, | 64 | Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates. |
Disparity
The 10 and 30-year Treasury bond yields are often viewed as “benchmarks”, reflecting the overall state of interest rates in the US economy. Many people concerned about mortgage interest rates track these bonds as a barometer for mortgage interest rates. However, in reality the Treasury and mortgage markets trade independently.
The supply and demand characteristics of Treasury bonds and mortgage-backed securities (MBS) differ significantly. Treasury securities represent money needed to fund the operations of the US government. MBSs, on the other hand, represent borrowing by homeowners.
Information related to Treasury bonds is relatively easy to come by. Almost every major news medium reports changes. On the other hand, accurate mortgage interest rate information is difficult and costly to obtain.
In the absence of information directly related to the mortgage interest rate markets, Treasury information can be useful in that the bond market generally trends in the same direction. However, mortgage interest rates can vary significantly. In fact, many times the Treasuries will trade wildly while MBS only see minor price changes and vice versa. Thus, differences between Treasuries and MBS sometimes lead to misleading price change differentials. Last Wednesday mortgage-backed securities closed down 2/32nds on the day while the 10-year Treasury fell 25/32nds and the 30-year Treasury fell 64/32nds. This is a prime example where anyone that looked solely at Treasuries thought the mortgage market was worsening when in reality mortgage interest rates were near unchanged on the day. The data provides a valuable lesson into the differences between treasury bonds and mortgage-backed securities. This is just another example of why looking solely at treasuries can lead people to the wrong conclusions.
Keying in on the correct information can mean the difference between making and losing a tremendous amount of money when making float and lock decisions in the short term.
Mark Ruhl
NMLS #105591 | Loan Officer
Mortgage Express
Direct 503.517.9341
Cell 503.317.7620
Fax 503.961.8694
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