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Mortgage Market in Review – December 10, 2018

   

Market Comment

Mortgage bond prices finished the week higher which helped rates improve. We started on a neutral note Monday. Stock weakness mid-week resulted in some flight to safety buying of US debt instruments. The data was mixed. The trade deficit was higher than expected. Revised Q3 Productivity was 2.3% versus the expected 2.2%. ADP employment was weaker than expected. Unemployment was 3.7% which mirrored estimates. Payrolls rose at a lower level than predicted. Average hourly earnings rose a little less than expected which tempered wage inflation fears for the short term. Consumer sentiment was 97.5 versus the expected 95 reading. Mortgage interest rates finished the week better by 1/8 to 1/4 of a discount point.


LOOKING AHEAD

Economic
Indicator
Release
Date & Time
Consensus
Estimate

Analysis
Producer Price Index Tuesday, Dec. 11,
8:30 am, et
Up 0.4%,
Core up 0.3%
Important. An indication of inflationary pressures at the producer level. Weaker figures may lead to lower rates.
Treasury Auctions Begin Tuesday, Dec. 11,
1:15 pm, et
None Important. 3Y Notes on Tuesday, 10Y Notes on Wednesday, and 10Y Notes on Thursday.
Consumer Price Index Wednesday, Dec. 12,
8:30 am, et
Up 0.3%,
Core up 0.2%
Important. A measure of inflation at the consumer level. Weaker figures may lead to lower rates.
Weekly Jobless Claims Thursday, Dec. 13,
8:30 am, et
233K Important. An indication of employment. Higher claims may result in lower rates.
Retail Sales Friday, Dec. 14,
8:30 am, et
Up 1.1% Important. A measure of consumer demand. A smaller than expected increase may lead to lower mortgage rates.
Industrial Production Friday, Dec. 14,
9:15 am, et
Up 0.2% Important. A measure of manufacturing sector strength. A lower than expected increase may lead to lower rates.
Capacity Utilization Friday, Dec. 14,
9:15 am, et
78.5% Important. A figure above 85% is viewed as inflationary. Weaker figure may lead to lower rates.
Business Inventories Friday, Dec. 14,
10:00 am, et
Up 0.3% Low importance. An indication of stored-up capacity. A significantly larger increase may lead to lower rates.

GSEs

Government sponsored enterprises (GSEs) are financial services created by Congress. Two of the most important GSEs in the mortgage industry are Fannie Mae and Freddie Mac. These corporations are designed to make credit available to targeted borrowers in an efficient manner. The supply and demand characteristics of Treasury bonds and mortgage-backed securities (MBSs) issued by Fannie and Freddie differ significantly. Treasury securities represent money needed to fund the operations of the US government. MBSs, on the other hand, represent borrowing by homeowners. Because homeowners can sell or refinance their homes, investors in 30-year mortgage-backed securities usually see principal repayment in significantly shorter periods of time. MBSs are part of many retirement accounts, which citizens depend on for income. The Federal Housing Finance Agency tried to preserve those investments while shrinking Fannie and Freddie. Some want to see them completely dissolved and a new system put in place. The ramifications of that could be widespread and the debate continues almost a decade later.

 


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