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Mortgage Market in Review – December 8, 2014

Market Comment

Mortgage bond prices finished the week lower which pushed rates a little higher. Rates were positive the beginning of the week tied to continued falling oil prices. Prices fell 40% from June, which represented a “wealth transfer” to the US consumer in the amount of $630M. Rates shot higher Tuesday as traders reacted to strong stocks and the looming employment report. Weekly jobless claims printed at 297K which was near expectations and did not move rates much. The employment report was better than expected which put additional upward pressure on rates. Unemployment came in at 5.8% and non-farm payrolls rose 321K. Mortgage interest rates finished the week worse by approximately 1/2 of a discount point.

LOOKING AHEAD

Economic
Indicator
Release
Date & Time
Consensus
Estimate

Analysis
3-year Treasury Note Auction Tuesday, Dec. 9,
1:15 pm, et
None Important.  Notes will be auctioned.  Strong demand may lead to lower mortgage rates.
10-year Treasury Note Auction Wednesday, Dec. 10,
1:15 pm, et
None Important.  Notes will be auctioned.  Strong demand may lead to lower mortgage rates.
Weekly Jobless Claims Thursday, Dec. 11,
8:30 am, et
287k Important.  An indication of employment.   Higher claims may result in lower rates.
Retail Sales Thursday, Dec. 11,
8:30 am, et
Up 1.2% Important.  A measure of consumer demand.  A smaller than expected increase may lead to lower mortgage rates.
30-year Treasury Bond Auction Thursday, Dec. 11,
1:15 pm, et
None Important.  Bonds will be auctioned.  Strong demand may lead to lower mortgage rates.
Producer Price Index Friday, Dec. 12,
8:30 am, et
Up 0.2%,
Core up 0.1%
Important.  An indication of inflationary pressures at the producer level.  Weaker figures may lead to lower rates.
U of Michigan Consumer Sentiment Friday, Dec. 12,
10:00 am, et
88.9 Important.  An indication of consumers’ willingness to spend.  Weakness may lead to lower mortgage rates.

Foreign Demand

Global investors are constantly searching for opportunities that will provide the greatest return with the least amount of acceptable risk.  While higher rates of return are enticing, they are not without considerably higher risk.

Investment products inherently all possess some sort of risk.  Many market participants searched for a safe haven in the US financial markets even with their shortcomings as global financial markets struggled.  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 moved prices higher and interest rates lower.  A reversal of this foreign demand could result in future spikes in mortgage interest rates.

Caution is the key heading into the auctions this week.  There is a real possibility of market swings with thin trading conditions likely.  Mortgage interest rates remain historically favorable.  Today’s rates are a given.

 

Copyright 2014. 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.