WR Starkey Mortgage News Market Comment - Week of October 26, 2009 Mortgage bond prices ended the week nearly unchanged despite considerable market volatility. Trading was up and down all week. Rates improved the first portion of the week as stocks fell below key psychological levels. Unfortunately a reversal the middle portion of the week eroded the earlier improvements. Data was mixed with tame inflation readings but generally stronger than expected economic activity. For the week, interest rates were near unchanged. The Treasury auctions will take center stage again this week. If there is strong foreign demand it will likely spill over to the mortgage bond market. Weak auctions will likely result in mortgage interest rate increases. Employment cost index data will also be carefully watched. -------------------------------------------------------------------------------- Economic Factors Economic Indicator Release Date Time Consensus Estimate Analysis 2-year Treasury Note Auction Tuesday, Oct. 27, 2009 None Important. $44 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates. New Home Sales Wednesday, Oct. 28, 2009 Up 2.6% Important. An indication of economic strength and credit demand. Weakness may lead to lower rates. 5-year Treasury Note Auction Wednesday, Oct. 28, 2009 None Important. $41 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates. Q3 Advance GDP Thursday, Oct. 29, 2009 Up 3.1% Very important. The aggregate measure of US economic production. Weakness may lead to lower rates. 7-year Treasury Note Auction Thursday, Oct. 29, 2009 None Important. $31 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates. Personal Income and Outlays Friday, Oct. 30, 2009 Unchanged, Down 0.4% Important. A measure of consumers' ability to spend. Weakness may lead to lower mortgage rates. Q3 Employment Cost Index Friday, Oct. 30, 2009 Up 0.5% Very important. A measure of wage inflation. Weakness may lead to lower rates. U of Michigan Consumer Sentiment Friday, Oct. 30, 2009 70.0 Important. An indication of consumers' willingness to spend. Weakness may lead to lower mortgage rates Existing Home Sales Last week's existing home sales data shocked the market with a stronger than expected increase. Sales rose 9.4%, considerably stronger than the expected 5.5% increase. Some analysts attribute the surge in sales to the $8000 tax credit that is currently set to expire at the end of November. Lower home prices and historically low mortgage interest rates also factored into the increase. From a national perspective this is a positive report. However, the fact that some major metropolitan areas of the country failed to see improvements is an example of the axiom that real estate is local. There is still uncertainty regarding the future state of the economy. Mortgage rates are great. Take advantage of them while that remains the case. Market Comment - Week of October 19th, 2009 Mortgage bond prices fell sharply last week driving mortgage rates higher. Rates were under pressure from better than expected economic news and rising stocks. Retail sales, weekly jobless claims, and industrial production data were all better than expected. The improved economic outlook had investors flocking to buy stocks, which helped the Dow Jones index to close over 10,000. For the week, interest rates rose nearly 7/8 of a discount point. The producer price index data to be released Tuesday will be the most important data this week. Any signs of inflation will generally not bode well for mortgage bonds. The Fed "Beige Book" will factor into trading this week. Stock strength and dollar valuation will play a pivotal role in mortgage interest rates as well. -------------------------------------------------------------------------------- Economic Factors Economic Indicator Release Date Time Consensus Estimate Analysis Housing Starts Tuesday, Oct. 20, 2009 Up 1.5% Important. A measure of housing sector strength. Weakness may lead to lower rates. Producer Price Index Tuesday, Oct. 20, 2009 Up 0.1%, Core up 0.1% Important. An indication of inflationary pressures at the producer level. Decreases may lead to lower rates. Fed "Beige Book" Wednesday, Oct. 21, 2009 None Important. This Fed report details current economic conditions across the US. Signs of weakness may lead to lower rates. Leading Economic Indicators Thursday, Oct. 22, 2009 Up 0.8% Important. An indication of future economic activity. A smaller increase may lead to lower rates. Existing Home Sales Friday, Oct. 23, 2009 Up 5.5% Low importance. An indication of mortgage credit demand. A significant decrease may lead to lower rates. Housing Starts Housing starts data is a leading indicator of the state of our economy. This report, provided by the Bureau of the Census, takes into account data from both single-family homes and multi-family dwellings. Building permits are also released with the housing starts data. By knowing the number of permits issued monthly, analysts can attempt to estimate for the upcoming months. Normally, starts are 10% higher than permits since all locations are not required to have a building permit. Housing starts and permits give a warning of future economic activity. In effect, a rise in housing starts can lead to a fall in the bond market and vice versa. Consumers tend to hold off on the purchase of new homes, new cars, and other big-ticket items if they are worried about the future of the economy. Housing is an important part of our economy. Continued declines in housing starts can lead to continued economic slowdown and essentially a deeper recession. On the other hand, increases in housing starts could signal a possible reversal. From the opposite perspective, changes in interest rates often lead to changes in housing starts. High interest rates can cause a significant decline in home sales, which can lead to a drop in housing starts. Just the opposite happens when rates drop and is one of the additional reasons the Fed is trying to keep rates low. Low mortgage rates affect both home sales and housing starts. The housing market across the country is a vital component in sustaining the economy. For some time homeowners generally saw an increase in the value of their homes. Unfortunately now that has all changed. The softening of the housing market tied to credit concerns continues to have many worried. Most economists believe more pain is headed our way from the housing sector. There is still uncertainty regarding the future state of the economy. Mortgage bonds have been volatile and improvements are not a given despite the recent Fed efforts to purchase mortgage bonds. The good news is that mortgage interest rates remain historically low. Be cautious. Market Comment - Week of October 12th, 2009 Mortgage bond prices fell last week pushing mortgage interest rates higher. The Treasury auctions were mixed with the 3 and 10-year auctions showing decent foreign demand. Unfortunately the 30-year auction was a huge disappointment and caused mortgage interest rates to worsen Thursday. The fear of future rate hikes sent mortgage bonds lower Friday pushing mortgage interest rates higher. For the week, interest rates rose by about 1/2 of a discount point. The consumer price index will be the most important release this week. Any signs of inflation will generally not bode well for mortgage bonds. Retail sales and the Fed minutes are also likely to factor into trading this week. Any surprises may lead to mortgage interest rate volatility. -------------------------------------------------------------------------------- Economic Factors Economic Indicator Release Date Time Consensus Estimate Analysis Retail Sales Wednesday, Oct. 14, 2009 Down 2.0% Important. A measure of consumer demand. Weakness may lead to lower mortgage rates. Business Inventories Wednesday, Oct. 14, 2009 Down 0.8% Low importance. An indication of stored-up capacity. A significantly larger increase may lead to lower rates. Fed Minutes Wednesday, Oct. 14, 2009 None Important. Details of the last Fed meeting will be thoroughly analyzed. Consumer Price Index Thursday, Oct. 15, 2009 Up 0.2%, Core up 0.1% Important. A measure of inflation at the consumer level. Lower figures may lead to lower rates. Philadelphia Fed Survey Thursday, Oct. 15, 2009 None Moderately important. A survey of business conditions in the Northeast. Weakness may lead to lower rates. Industrial Production Friday, Oct. 16, 2009 Up 0.1% Important. A measure of manufacturing sector strength. Weakness may lead to lower rates. Capacity Utilization Friday, Oct. 16, 2009 69.7% Important. A figure above 85% is viewed as inflationary. Weakness may lead to lower rates. U of Michigan Consumer Sentiment Friday, Oct. 16, 2009 73.5 Important. An indication of consumers' willingness to spend. Weakness may lead to lower mortgage rates. Tax Credit A slew of professionals tied to the housing sector made eager pleas to Congress last week requesting the $8000 first time homebuyer tax credit be extended. The benefit was part of the stimulus plan and is set to expire the end of November. The White House indicated the program "helped the economy" and led to "quite a bit of success" and noted consideration of extending the program. There are additional proposals in the Senate to not only extend the program but also to increase the tax credit and remove the first time homebuyer qualification. Unfortunately the cost to extend the credit is around $1 billion per month. This has politicians from both sides of the isle concerned. The House voted Thursday to extend the credit for American service members another 12 months. Both parties have members pushing for the extension to apply to all purchasers. Analysts indicate some sort of extension is very likely. Last week was a great example of the danger of thinking rates would always improve. The good news is that despite last week's bounce higher, rates still remain historically favorable. Market Comment - Week of October 5th, 2009 Mortgage bond prices rose last week pushing mortgage interest rates lower. Consumer confidence came in weaker than expected helping rates rally Tuesday morning. The ADP employment release showed more job losses than expected. The employment report Friday morning confirmed the ADP payroll data indicating the US economy shed 263,000 jobs in September. For the week, interest rates fell by about 7/8 of a discount point. Another round of Treasury auctions hits the market this week. Solid foreign demand will help rates remain the same or improve. Signs that foreign demand is diminishing will not bode well for mortgage interest rates. Weekly jobless claims set for release Thursday will carry a bit more weight than usual due to the lack of other economic data. -------------------------------------------------------------------------------- Economic Factors Economic Indicator Release Date Time Consensus Estimate Analysis 3-year Treasury Note Auction Tuesday, Oct. 6, 2009 None Important. $39 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates. 10-year Treasury Note Auction Wednesday, Oct. 7, 2009 None Important. $20 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates. Consumer Credit Wednesday, Oct. 7, 2009 Down $9.5 billion Low importance. A significantly larger than expected figure may lead to lower mortgage interest rates. Weekly Jobless Claims Thursday, Oct. 8, 2009 None Moderately Important. A measure of employment. Job weakness may help rates improve. 30-year Treasury Bond Auction Thursday, Oct. 8, 2009 None Important. $12 billion of bonds will be auctioned. Strong demand may lead to lower mortgage rates. Trade Data Friday, Oct. 9, 2009 $33 billion deficit Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates. Professionals Obtaining a mortgage is often a confusing task that can also lead to frustration. The reason for the confusion is due to the fact that mortgage financing is complex. The good news is that this complexity provides consumers with options and choices best suited to fit their needs. Everyone's financial position is unique. Some people have large cash reserves that can be used for down payments while others want to get into a home with little or no money down. Credit ratings vary from person to person. In addition, future plans vary. Some people plan on staying in their home for the rest of their lives while others only plan on staying for a few years. These facts alone make comparing your mortgage to your neighbor's based on rate alone a flawed endeavor, yet many people attempt to do so. Admittedly, everyone wants a good deal. Keep in mind that comparing rates is just one component of the entire mortgage. Other variables include the term, down payment requirements, income qualifications, credit ratings, reserve requirements, current debt, prepaid points, and many more. A mortgage professional is able to take all of these variables that are unique to each individual and help a person obtain the mortgage loan that works best for their situation. The service they provide is time consuming and complex. However, the rewards of dealing with a professional carry forward throughout a borrower's life. Making wise financial decisions today helps to pave the way for a safe and secure future. Market Comment - Week of September 28th, 2009 Mortgage bond prices rose last week pushing mortgage interest rates lower. The data was mixed with stronger than expected consumer sentiment and a disappointing 5-year Treasury note auction. Fortunately the Fed meeting resulted in some positive mortgage interest rate movements and strong foreign demand for the 7-year Treasury auction helped rates improve. For the week interest rates fell by about 1/4 of a discount point. The employment report will take center stage this week. Consumer confidence, ADP employment, income, outlays, ISM Index, and factory orders data have the potential to move the financial markets. The recent economic data has been mixed. Remember that the bond market typically likes to see weaker figures with very little price pressures. -------------------------------------------------------------------------------- Economic Factors Economic Indicator Release Date Time Consensus Estimate Analysis Consumer Confidence Tuesday, Sept. 29, 2009 57.0 Important. An indication of consumers' willingness to spend. Weakness may lead to lower mortgage rates. ADP Employment Wednesday, Sept. 30, 2009 Down 200k Important. An indication of employment. A larger decrease may bring lower rates. Q2 GDP final revision Wednesday, Sept. 30, 2009 Down 1.2% Moderately important. The aggregate measure of US economic production. Weakness may lead to lower rates. Personal Income and Outlays Thursday, Oct. 1, 2009 Income up 0.1%, Outlays up 1.0% Important. A measure of consumers' ability to spend. Weakness may lead to lower mortgage rates. Construction Spending Thursday, Oct. 1, 2009 Down 0.2% Low importance. An indication of economic strength. A significant decrease may lead to lower rates. ISM Index Thursday, Oct. 1, 2009 54.0 Important. A measure of manufacturer sentiment. Weakness may lead to lower mortgage rates. Employment Friday, Oct. 2, 2009 9.8%, -188k Very important. An increase in unemployment or a larger decrease in payrolls may bring lower rates. Factory Orders Friday, Oct. 2, 2009 Up 1.1% Important. A measure of manufacturing sector strength. Weakness may lead to lower rates. Good News The housing sector of the economy has been hit hard during these troubled economic times. In an effort to stabilize things the Federal Reserve implemented a system to keep mortgage interest rates low through the purchasing of $1.25 trillion of mortgage-backed securities throughout this year. Few can argue the Fed has not been effective with rates at historically favorable levels. However uncertainty still looms regarding the future of mortgage interest rates after the Fed program stops. The Fed provided some good news last week when they indicated the purchasing of mortgage bonds would be extended into the first quarter of 2010. Prior to the meeting all indications were the program would stop the end of this year. The bad news is that they have not increased the amount to be spent as of yet. This still leaves much uncertainty and some view it as just a delay. The Fed also indicated that long term inflation expectations were stable. This is great news for fixed income securities and the stability of mortgage interest rates. Remember, the current goal of the Fed is to keep mortgage interest rates relatively low and stable. They appear to be content with rates in the current historically favorable range. Market Comment - Week of September 21st, 2009 Mortgage bond prices fell last week pushing mortgage interest rates higher. Producer Price Index (PPI) data release last Tuesday was much higher that expected and sparked inflation fears. That data set the tone for negative trading early in the week. Thankfully, the Consumer Price Index (CPI), a better gauge of overall inflation, was lower that expected helping interest rates recover. For the week interest rates rose about 3/8's of a discount point. The record debt will once again take center stage this week. If foreign demand remains strong, rates should remain the same or even improve. The Fed meeting will be the most significant event this week. While no adjustments are expected, the Fed remarks will be carefully weighed. -------------------------------------------------------------------------------- Economic Factors Economic Indicator Release Date Time Consensus Estimate Analysis Leading Economic Indicators Monday, Sept. 21, 2009 Up 0.7% Important. An indication of future economic activity. A smaller increase may lead to lower rates. 2-year Treasury Note Auction Tuesday, Sept. 22, 2009 None Important. $43 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates. 5-year Treasury Note Auction Wednesday, Sept. 23, 2009 None Important. $40 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates. Fed Meeting Adjourns Wednesday, Sept. 23, 2009 No rate change Important. Few expect the Fed to change rates, but some volatility may surround the adjournment of this meeting. 7-year Treasury Note Auction Thursday, Sept. 24, 2009 None Important. $29 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates Durable Goods Orders Friday, Sept. 25, 2009 Down 0.1% Important. An indication of the demand for "big ticket" items. Weakness may lead to lower rates. U of Michigan Consumer Sentiment Friday, Sept. 25, 2009 70.0 Important. An indication of consumers' willingness to spend. Weakness may lead to lower mortgage rates. New Home Sales Friday, Sept. 25, 2009 Up 1.6% Important. An indication of economic strength and credit demand. A decrease may lead to lower rates. New Home Sales New Home Sales data is compiled monthly by the Department of Commerce's Census Bureau and is gathered from builders throughout the country. The data represents new home sales for the nation as well as four areas of the country: the Northeast, the Midwest, the South, and the West. Information on the average price of a home, the number of homes for sale, and the supply of unsold homes are also provided. The data is an important indicator because it shows any strength or weakness in the housing sector. A slowdown in new home sales tends to lead to a slowdown in housing starts, which will continue to affect other indicators. New Home Sales data is often volatile and difficult to predict. Most analysts look at a three-month average in order to see any trends in the growth rate. Surges in the release are often greeted with little more than an average reaction in the bond market. However, the data remains significant in showing the condition of the housing sector of the economy. Market Comment - Week of September 14th, 2009 Mortgage bond prices rose last week pushing mortgage interest rates lower. The US Treasury auctions went well with relatively strong foreign demand for most issues. The gains came as the Fed continued to pour billions into mortgage bonds in an effort to keep rates low to stabilize the housing sector of the economy. The data was mixed as weekly jobless claims came in better than expected and the Fed "Beige Book" indicated inflation remained in check. For the week interest rates fell by about 3/8 of a discount point. The consumer price index will be the most important data this week. If inflation indications are tame, rates will likely hold steady or improve. However, if inflation increases look for mortgage interest rates to spike higher. -------------------------------------------------------------------------------- Economic Factors Economic Indicator Release Date Time Consensus Estimate Analysis Producer Price Index Tuesday, Sept. 15, 2009 Up 0.8%, Core up 0.1% Important. An indication of inflationary pressures at the producer level. Lower figures may lead to lower rates. Retail Sales Tuesday, Sept. 15, 2009 Up 1.6% Important. A measure of consumer demand. A smaller than expected increase may lead to lower mortgage rates. Business Inventories Tuesday, Sept. 15, 2009 Down 0.8% Low importance. An indication of stored-up capacity. A significantly large increase may lead to lower rates. Consumer Price Index Wednesday, Sept. 16, 2009 Up 0.4%, Core up 0.1% Important. A measure of inflation at the consumer level. Lower figures may lead to lower rates. Industrial Production Wednesday, Sept. 16, 2009 Up 0.7% Important. A measure of manufacturing sector strength. A lower than expected increase may lead to lower rates. Capacity Utilization Wednesday, Sept. 16, 2009 69.1% Important. A figure above 85% is viewed as inflationary. Weakness may lead to lower interest rates. Housing Starts Thursday, Sept. 17, 2009 Up 1.2% Important. A measure of housing sector strength. Weakness may lead to lower rates. Philadelphia Fed Survey Thursday, Sept. 17, 2009 None Moderately important. A survey of business conditions in the Northeast. Weakness may lead to lower rates. Business Inventories The report on business inventories basically gives a broader look at the durable goods, factory orders, and retail sales reports. Not only is this report an important part of the investment component of the GDP, but it also provides additional evidence about the economy in the upcoming months. Changes in business inventories slow as the economy approaches a peak, and rise as the economy approaches the trough of a recession. Therefore the change in business inventories is a leading indicator of GDP. The data for this report, which are published by the Department of Commerce's Census Bureau, comes from a monthly survey of inventories, orders, and manufacturers' shipments, in addition to the merchant wholesalers and retail trade surveys. Not a great amount of attention is typically paid to this report due to the fact that much of the data is already available and surprises are rare. The only new information in this report is retail inventories. However, in this environment every piece of data has the potential to cause some volatility. There still remains some uncertainty about the future of mortgage interest rates. Taking advantage of the recent improvements in rates makes sense. Market Comment - Week of September 7th, 2009 Mortgage bond prices rose last week pushing mortgage interest rates lower. The gains came following some stock weakness, signs that unemployment may rise, and better than expected productivity. Increased productivity allows companies to produce more with the same labor input. This helps keep costs in check and alleviates inflation fears. For the week interest rates fell by about 3/8 of a discount point. The Fed "Beige Book" will be the most important data this week. The Treasury auctions will also set the tone for mortgage interest rates. Strong foreign demand could result in mortgage interest rates improvements. -------------------------------------------------------------------------------- Economic Factors Economic Indicator Release Date Time Consensus Estimate Analysis 3-year Treasury Note Auction Tuesday, Sept. 8, 2009 None Important. $38 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates. Consumer Credit Tuesday, Sept. 8, 2009 Down $4.0 billion Low importance. A significantly large increase may lead to lower mortgage interest rates. Fed "Beige Book" Wednesday, Sept 9, 2009 None Important. This Fed report details current economic conditions across the US. Signs of weakness may lead to lower rates. 10-year Treasury Note Auction Wednesday, Sept 9, 2009 None Important. $20 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates. Trade Data Thursday, Sept. 10, 2009 $27.0 billion deficit Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates. 30-year Treasury Bond Auction Thursday, Sept. 10, 2009 None Important. $12 billion of bonds will be auctioned. Strong demand may lead to lower mortgage rates. U of Michigan Consumer Sentiment Friday, Sept. 11, 2009 67.3 Important. An indication of consumers' willingness to spend. Weakness may lead to lower mortgage rates. Auctions US Treasury bonds do not directly dictate fixed mortgage interest rate pricing however they do have an indirect impact. Both Treasuries and mortgage bonds often track in the same direction but this is not always the case. There are many times that Treasuries and mortgage bonds move inversely. Despite the overwhelming size of the US economy, foreign investors can still have an effect on moving the financial markets. When foreign economies struggle foreign investors often purchase US based investments including mortgage bonds. This demand usually causes mortgage bond prices to rise and interest rates to fall. This flight to quality buying was one of the factors that helped mortgage interest rates to remain historically low in years past. There is a real threat that continued global economic turmoil might keep foreign investors from purchasing mortgage bonds in the future. The Treasury auctions this week will be important in determining the current appetite of foreign investors for dollar denominated securities. If this week's auctions are poorly bid mortgage bond prices could fall pressuring mortgage interest rates higher. 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. Market Comment - Week of August 24th, 2009 Mortgage bond prices fell last week pushing mortgage interest rates higher. Inflation data remained bond friendly with the Producer Price Index data coming in lower than expected across the board. Rates seesawed with stocks. Severe stock weakness last Monday helped mortgage bonds start the week on a positive note. Unfortunately, a stock rebound Tuesday erased Monday's gains and this pattern continued throughout the week. Fortunately, the Fed continued to purchase billions of dollars of mortgage-backed securities in an effort to keep rates relatively low. For the week, interest rates rose about 1/8 of a discount point. The Treasury auctions will once again take center stage as record debt issuance continues. If signs of foreign demand falter, rates will likely suffer. Consumer confidence data may also move the market. Look for stocks to play a role as well. Economic Factors Economic Indicator Release Date Time Consensus Estimate Analysis Consumer Confidence Tuesday, Aug. 25, 2009 48.00 Important. An indication of consumers' willingness to spend. Weakness may lead to lower mortgage rates. 2-year Treasury Note Auction Tuesday, Aug. 25, 2009 None Important. 42-billion of notes will be auctioned. Strong demand may lead to lower mortgage rates. Durable Goods Orders Wednesday, Aug 26, 2009 Up 3.2% Important. An indication of the demand for "big ticket" items. Weakness may lead to lower rates. New Home Sales Wednesday, Aug 26, 2009 390k Important. An indication of economic strength and credit demand. A decrease may lead to lower rates. 5-year Treasury Note Auction Wednesday, Aug 26, 2009 None Important. 39-billion of notes will be auctioned. Strong demand may lead to lower mortgage rates. 7-year Treasury Note Auction Thursday, Aug 27, 2009 None Important. 28-billion of notes will be auctioned. Strong demand may lead to lower mortgage rates. Personal Income and Outlays Friday, Aug. 28, 2009 Up 0.1%, Up 0.2% Important. A measure of consumers' ability to spend. Weakness may lead to lower mortgage rates. U of Michigan Consumer Sentiment Friday, Aug. 28, 2009 64.8 Important. An indication of consumers' willingness to spend. Weakness may lead to lower mortgage rates. Durable Goods Orders Durable goods orders are generally believed to be a precursor of activity in the manufacturing sector because manufacturing must have an order before considering an increase in production. Conversely, a decrease in orders eventually causes production to be scaled back; otherwise the manufacturer accumulates inventories, which must be financed. Unfortunately, durable goods orders data has many drawbacks. The first problem with the orders data is that they are extremely volatile. The volatility of the data usually is attributed to the civilian aircraft and defense components of the figure. For example, if Boeing has a big order for one of its jumbo jets, the civilian aircraft category can change by $3-4 billion. The same scenario is evident when an aircraft carrier is ordered, surges in the defense category result. The second problem with the data is that orders are continuously being revised. There are many times in the past when the advance report on durables showed an increase while a revision a week later showed a decrease. The revised data is found in the report on manufacturing orders, shipments, and inventories. Since the data is very volatile and difficult to forecast, there is quite often a huge disparity between the actual release and the initial projections. Be cautious heading into this release. Market Comment - Week of August 17th, 2009 Mortgage bond prices rose last week pushing mortgage interest rates lower. Relatively strong foreign demand for US debt along with tame inflation data helped rates improve. The consumer price index came in unchanged and the core, which excludes volatile food and energy prices, rose 0.1% as expected. The Fed left rates unchanged and continued to purchase billions of dollars worth of mortgage-backed securities in an effort to keep rates relatively low. For the week interest rates fell more than a full discount point. The producer price index Tuesday will be the most important release this week setting the tone for trading ahead. If signs of inflation emerge at the producer level rates will likely suffer. Housing starts and leading economic indicators data may also move the market. -------------------------------------------------------------------------------- Economic Factors Economic Indicator Release Date Time Consensus Estimate Analysis Producer Price Index Tuesday, Aug. 18, 2009 Down 0.2%, Core up 0.1% Important. An indication of inflationary pressures at the producer level. Lower figures may lead to lower rates. Housing Starts Tuesday, Aug. 18, 2009 Up 2.7% Important. A measure of housing sector strength. Weakness may lead to lower rates. Leading Economic Indicators Thursday, Aug. 20, 2009 Up 0.6% Important. An indication of future economic activity. A smaller increase may lead to lower rates. Philadelphia Fed Survey Thursday, Aug. 20, 2009 Down 2.0 Moderately important. A survey of business conditions in the Northeast. Weakness may lead to lower rates. Existing Home Sales Friday, Aug. 21, 2009 Up 2.2% Low importance. An indication of mortgage credit demand. Significant weakness may lead to lower rates. Market Analysis The two traditional approaches to market forecasting are fundamental and technical analysis. Fundamental analysis is an attempt to predict future price movements based on the most current economic data. It is based on the theory that economic data can provide analysts with an insight into how levels of economic activity can affect the supply of and demand for money, and thereby impact interest rates. In contrast, technical analysis is an attempt to predict future market movements based on past price movement patterns. Technical analysts typically use charts and graphs to find patterns or trends into potential future market movements. Technical analysis is based on the assumption that actual changes in economic activity precede the release of the corresponding economic data. Thus, technical analysts attempt to reveal hidden supply and demand factors by reviewing price and volume movements that are not supported by the release of the most current economic data. Another important factor of technical analysis is market sentiment. Market sentiment measures the emotions and expectations of investors in the market. Sentiment, like most emotions, changes often in a short span of time and is impossible to predict accurately. The inability of anyone to accurately predict the future makes a cautious approach necessary to protect against market volatility. The fact remains that mortgage interest rate are historically favorable. It is difficult to justify the risk in floating when the low rates currently available are a sure thing. Timing is one of the most important factors in success. Unfortunately, knowing the perfect time to lock in a loan is impossible until after the fact. While analysts constantly try to predict the future, the bottom line is they continually fall short in terms of accuracy. The good news is that the Fed has done a relatively good job of keeping rates favorable, but not without some serious spikes here and there. Without the Fed pouring billions into mortgage bonds, rates would surely be higher. Market Comment - Week of August 10th, 2009 Mortgage bond prices fell last week pushing mortgage interest rates higher. Stronger than expected data and positive stock movements pressured rates. The Institute for Supply Management (ISM), factory orders, weekly jobless claims, and employment report all came in stronger than expected. The personal income and outlays data was the only release that was even near expectations. Signs of recovery in the economy with continued record debt had many traders concerned about inflation implications. Inflation erodes the value of fixed income securities. For the week interest rates rose by about 2 full discount points. The record debt auctions will continue to pressure mortgage interest rates. If foreign demand does not falter then mortgage interest rates will likely stay neutral or improve. However, weak foreign demand would likely have the opposite effect. -------------------------------------------------------------------------------- Economic Factors Economic Indicator Release Date Time Consensus Estimate Analysis Preliminary Q2 Productivity Tuesday, Aug. 11, 2009 Up 4.9% Important. A measure of output per hour. Improvement may lead to lower mortgage rates. 3-year Treasury Note Auction Tuesday, Aug. 11, 2009 None Important. $37 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates. Trade Data Wednesday, Aug. 12, 2009 $28.5 billion deficit Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates. 10-year Treasury Note Auction Wednesday, Aug. 12, 2009 None Important. $23 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates. Fed Meeting Adjourns Wednesday, Aug. 12, 2009 No change Important. Few expect the Fed to change rates, but some volatility may surround the adjournment of this meeting. Retail Sales Thursday, Aug. 13, 2009 Up 0.3% Important. A measure of consumer demand. A smaller than expected increase may lead to lower mortgage rates. 30-year Treasury Bond Auction Thursday, Aug. 13, 2009 None Important. $15 billion of bonds will be auctioned. Strong demand may lead to lower mortgage rates. Consumer Price Index Friday, Aug. 14, 2009 Unchanged, Core up 0.2% Important. A measure of inflation at the consumer level. Lower figures may lead to lower rates. Employment Surprise The employment report is generally the most important data released each month. Last week's employment report shocked analysts and the market when all three components came in better than expected. Unemployment came in @ 9.4%, stronger than the expected 9.6% mark. Non-farm payrolls fell 247k, not as weak as the expected 320k decline. Average hourly earnings rose 0.2%, stronger than the expected 0.1% increase. Unfortunately mortgage interest rates got worse by over 1/2 a discount point instantly following the release. Be cautious here as economic uncertainty continues. As we saw last week, lower rates are not a given. Market Comment - Week of July 27th, 2009 Mortgage bond prices rallied the first portion of the week only to give back the gains as stocks surged. The DOW eclipsed the 9000 mark. Ben Bernanke spoke of a "jobless recovery", a situation where employers use productivity to increase production without additional labor. This would basically be an environment where the unemployment rate remains high long after the economy is in recovery. There wasn't much data but the existing home sales data did come in higher than expected. For the week interest rates rose by about 1/8 of a discount point. The US Treasury will auction $115 billion of 2, 5, and 7-year notes this week. The additional debt supply may pressure rates. With so many data releases expect the market to be very volatile. -------------------------------------------------------------------------------- Economic Factors Economic Indicator Release Date Time Consensus Estimate Analysis New Home Sales Monday, July 27, 2009 355K Important. An indication of economic strength and credit demand. Weakness may lead to lower rates. Consumer Confidence Tuesday, July 28, 2009 48.7 Important. An indication of consumers' willingness to spend. Weakness may lead to lower mortgage rates. Durable Goods Orders Wednesday, July 29, 2009 Down 0.5% Important. An indication of the demand for "big ticket" items. Weakness may lead to lower rates. Fed "Beige Book" Wednesday, July 29, 2009 None Important. This report details current economic conditions across the US. Weakness may lead to lower rates. Q2 Advance GDP Friday, July 31, 2009 Down 1.5% Very important. The aggregate measure of US economic production. Weakness may lead to lower rates. PCE Core Inflation Friday, July 31, 2009 Up 2.4% Important. A measure of price increases for all domestic personal consumption. Weaker figure may help rates improve. Q2 Employment Cost Index Friday, July 31, 2009 Up 0.3% Very important. A measure of wage inflation. Weakness may lead to lower rates. Employment Cost Index The employment cost index is a quarterly report issued by the Department of Labor. The report measures the growth of wages, salaries, and benefits costs over a certain period of time. Though ECI figures are usually weeks old, the data remains the best indicator of employment price pressures considering it factors employees' total compensation. If wage pressures become evident, higher expectations of inflation also tend to arise. However, increasing compensation does not necessarily lead to increased inflationary pressures. Oftentimes, increased productivity enables employers to increase compensation without increasing the costs of their goods or services. It is important to note that no single economic indicator can consistently predict the future of the economy. However, the employment cost index is a closely watched release. Most of the recent Fed releases and speeches indicate inflation is a concern and market participants remain cautious. Now is a good time to take advantage of mortgage interest rates at their current levels to avoid exposure to future market volatility. Market Comment - Week of July 13th, 2009 Mortgage bond prices had another volatile week with rates rallying midweek as the additional Treasury debt was absorbed well. Foreign demand for the shorter-term auctions was surprisingly strong while the longer-term auction was average. The US Treasury auctioned $963 billion of debt the first half of this year and is expected to offer $1.1trillion in he second half. Weekly jobless claims were not as bad as expected which didn't help mortgage bond prices. However, falling oil prices helped ease inflation fears and enabled mortgage bond prices to increase, which pushed rates lower. Oil was under $60/barrel last Thursday morning. For the week interest rates improved by about 1/2 of a discount point. The consumer price index data Wednesday will be the most important data this week. Signs of inflationary pressures from any of the data releases will not bode well for mortgage interest rates. -------------------------------------------------------------------------------- Economic Factors Economic Indicator Release Date Time Consensus Estimate Analysis Producer Price Index Tuesday, July 14, 2009 Up 0.7%, Core up 0.1% Important. An indication of inflationary pressures at the producer level. Lower figures may lead to lower rates. Retail Sales Tuesday, July 14, 2009 Up 0.5% Important. A measure of consumer demand. A smaller than expected increase may lead to lower mortgage rates. Consumer Price Index Wednesday, July 15, 2009 Up 0.6%, Core up 0.1% Important. A measure of inflation at the consumer level. Lower figures may lead to lower rates. Industrial Production Wednesday, July 15, 2009 Down 0.6% Important. A measure of manufacturing sector strength. Weakness may lead to lower rates. Capacity Utilization Wednesday, July 15, 2009 67.9% Important. A figure above 85% is viewed as inflationary. Weakness may lead to lower rates. Fed Minutes Wednesday, July 15, 2009 None Important. Details of the last Fed meeting will be thoroughly analyzed. Philadelphia Fed Survey Thursday, July 16, 2009 None Moderately important. A survey of business conditions in the Northeast. Weakness may lead to lower rates. Housing Starts Friday, July 17, 2009 Down 0.1% Important. A measure of housing sector strength. Larger than expected decrease may lead to lower rates. Fed Minutes The Federal Open Market Committee decided in December of 2004 to reduce the lag time between the open market committee meeting and the release of the minutes from six to eight weeks to only three weeks. The minutes from the meeting have the ability to cause mortgage interest rate volatility because they provide more policy details than the standard post meeting release. Most importantly the minutes provide the Fed's complete economic analysis and the various opinions of individual Fed members. There is typically an overwhelming consensus among the members. However, there can also be dissension, which often causes uneasiness in the financial markets. The release often comes and goes without much uproar but keep in mind that if any of the text seems troubling to analysts you can see market volatility. Remember that mortgage interest rates remaining historically favorable. Capitalizing on current levels is wise amid the recent economic instability across the globe. Inflation fears could be stoked with continued Middle East tension and hurricane season heading our way. Inflation, real or perceived, generally does not bode well for mortgage bonds and could cause rates to rise. Market Comment - Week of July 6th, 2009 Mortgage bond prices had another volatile week with rates pushing higher the beginning of the week only to bounce back towards the end. Thursday's employment report was mixed. Non-farm payrolls fell 467,000 in June and the unemployment rate stood at 9.5%. Estimates were for jobs to decline 365,000 and the unemployment rate to stand at 9.6%. Fortunately the payrolls figure gained most of the attention along with falling oil prices and we recovered about 1/2 of a discount point Thursday morning. Oil was under $67/barrel Thursday morning, which helped alleviate inflation fears. The bond market was closed Friday for the holiday. For the week interest rates were near unchanged. The additional debt supplied tied to the US Treasury auctions will be the most important data this week. The trade data may also move the financial markets. -------------------------------------------------------------------------------- Economic Factors Economic Indicator Release Date Time Consensus Estimate Analysis 3-year Treasury Note Auction Tuesday, July 7, 2009 None Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates. 10-year Treasury Note Auction Wednesday, July 8, 2009 None Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates. Consumer Credit Wednesday, July 8, 2009 Down $7.5 billion Low importance. A significantly large increase may lead to lower mortgage interest rates. 30-year Treasury Bond Auction Thursday, July 9, 2009 None Important. Bonds will be auctioned. Strong demand may lead to lower mortgage rates. Trade Data Friday, July 10, 2009 $30 billion 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, July 10, 2009 71.0 Important. An indication of consumers' willingness to spend. Weakness may lead to lower mortgage rates. Weather The mortgage interest rate markets are subject to an enormous number of factors. Most analysts agree that weather can have an effect on market activity. Although the effects are seldom long lasting, they can be quite significant. The United States is the world's largest exporter of corn. Last year, relatively rainy weather across the Midwest portions of the United States delayed the planting of corn. This caused corn prices to escalate. This year corn farmers planted more acres of corn than analysts expected. Larger corn crops recently caused prices to fall. This is one bright spot amid heightened inflationary fears. Lower corn prices likely will result in lower food prices for some items. The weather also has the potential to directly alter fuel prices. As we enter the hurricane season, many oil and gas fields in the Gulf along with refineries along coasts are susceptible to damage. If this were to occur, oil prices would almost surely rise sharply. Rising oil prices would do little to help mortgage bond prices already pressured by inflationary fears and competition for investor funds from record debt levels. The result would most likely be higher rates. The economic effects of various weather occurrences may cause only temporary changes in economic activity. However, those times of change can have a lasting impact on people obtaining mortgages. Despite the rate volatility seen recently, mortgage interest rates remain historically favorable for borrowers. Now is a great time to take advantage of rates at these levels. Market Comment - Week of June 29th, 2009 Mortgage bond prices shot higher last week driving home loan rates lower. Mortgage rates found support from investors around the world following last week's Treasury auctions. The Treasury sold bonds totaling 104B that were well received by foreign central banks. The indirect bidder participation, an indication of foreign demand, was near all-time highs. For the week interest rates fell by over a full discount point. The employment report Thursday will be the most important release this week. The ADP employment report will give an earlier glimpse into the employment situation though the two reports are derived from different data so there could be some divergence. Strength in the other economic data will do little to help mortgage interest rates improve. Economic Factors Economic Indicator Release Date Time Consensus Estimate Analysis Consumer Confidence Tuesday, June 30, 2009 55.1 Important. An indication of consumers' willingness to spend. Weakness may lead to lower mortgage rates. ADP Employment Wednesday, July 1, 2009 -363k Important. An indication of employment. A large decrease in payrolls may bring lower rates. ISM Index Wednesday, July 1, 2009 44.00 Important. A measure of manufacturer sentiment. A larger decline may lead to lower mortgage rates. Employment Thursday, July 2, 2009 9.6%, -370k jobs Very important. An increase in unemployment or a large decrease in payrolls may bring lower rates. Factory Orders Thursday, July 2, 2009 Up 0.2% Important. A measure of manufacturing sector strength. Weakness may lead to lower rates. Market Holiday Friday, July 3, 2009 None Important. Bond market closed in honor of Independence Day. 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 manor. Fannie and Freddie were completely privately owned. However actions by the Treasury and Congress within the last year now blur the ownership. The credit crisis resulted in Fannie and Freddie facing huge liquidity concerns. Their insolvency under fair value accounting resulted in drastic measures to prevent total failure. The Treasury placed the GSEs in conservator, increased the lines of credit to the GSEs, and infused both companies with $100 billion for an ownership stake of 79.9%. This US Government ownership of these companies leaves many unknowns. While conservatorship implies temporary control, the Treasury exit strategy remains unclear and has yet to be revealed. The supply and demand characteristics of Treasury bonds and mortgage-backed securities (MBSs) issued by Fannie and Freddie traditionally differ. 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. In terms of demand, Treasury securities are regarded as "risk free" investments, and often benefit from a "flight to quality" in times of financial crisis. Market Comment - Week of June 22nd, 2009 Mortgage bond prices remained volatile in up and down trading last week. We started the week in positive territory only to have the gains erased as stronger than expected housing starts data shocked the market Tuesday and overshadowed the tame inflation data. Producer and consumer price data showed inflation remained in check however oil prices remained volatile. US debt concerns continued as the Treasury announced record auctions ahead. For the week interest rates remained near unchanged. While the Fed meeting is usually the most important event it will likely be overshadowed by the record $104b Treasury debt auctions this week. Durable goods order, income, outlays, and consumer sentiment data may also cause mortgage interest rate volatility. -------------------------------------------------------------------------------- Economic Factors Economic Indicator Release Date Time Consensus Estimate Analysis Existing Home Sales Tuesday, June 23, 2009 Up 3.2% Low importance. An indication of mortgage credit demand. Significant weakness may lead to lower rates. 2-year Treasury Note Auction Tuesday, June 23, 2009 None Important. $40 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates. Durable Goods Orders Wednesday, June 24, 2009 Down 0.9% Important. An indication of the demand for New Home Sales Wednesday, June 24, 2009 Up 2.3% Important. An indication of economic strength and credit demand. Weakness may lead to lower rates. 5-year Treasury Note Auction Wednesday, June 24, 2009 None Important. $37 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates. Fed Meeting Adjourns Wednesday, June 24, 2009 No change Important. Few expect the Fed to change rates, but volatility may surround the adjournment of this meeting. Q1 GDP final revision Thursday, June 25, 2009 Down 5.7% Moderately important. A measure of US economic production. Weakness may lead to lower rates. 7-year Treasury Note Auction Thursday, June 25, 2009 None Important. $27 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates. Fed Meeting The Fed's chief policy tool is the manipulation of short-term interest rates. As of late, short-term rates have been so low that the Fed is limited with their options. The Obama administration is pushing for expanded Fed powers to supervise large banks, hedge funds, and consumer financial products. Both political parties express concerns about increasing the Fed's role citing previous failures. However, most agree something needs to be done and many argue the Fed is best equipped to tackle the current problems. All eyes will be focused on the Fed meeting Wednesday. A cautious approach to float/lock decisions is prudent heading into the meeting. Market volatility is likely. Market Comment - Week of 6-15-2009 Mortgage bond prices had another volatile week pushing mortgage interest rates higher. US debt concerns played the biggest factor in rate swings as worries continued that countries would shift out of US dollar holdings. Russia indicated a willingness to move some reserves from US Treasuries to International Monetary Fund bonds. Retails sales rose 0.5% as expected but the positive figure reinforced the belief that the economy is turning. Oil prices continued to escalate hitting over $72/barrel. For the week interest rates rose by 1/4 of a discount point. The consumer price index Wednesday will be the most important release this week. Strength in the other economic data will do little to help mortgage interest rates improve. -------------------------------------------------------------------------------- Economic Factors Economic Indicator Release Date Time Consensus Estimate Analysis Housing Starts Tuesday, June 16, 2009 Up 6.9% Important. A measure of housing sector strength. Weakness may lead to lower rates. Producer Price Index Tuesday, June 16, 2009 Up 0.4%, Core up 0.1% Important. An indication of inflationary pressures at the producer level. Lower figures may lead to lower rates. Industrial Production Tuesday, June 16, 2009 Down 0.5% Important. A measure of manufacturing sector strength. Weakness may lead to lower rates. Capacity Utilization Tuesday, June 16, 2009 68.6% Important. A figure above 85% is viewed as inflationary. Weakness may lead to lower rates. Consumer Price Index Wednesday, June 17, 2009 Up 0.2%, Core up 0.1% Important. A measure of inflation at the consumer level. Lower figures may lead to lower rates. Leading Economic Indicators Thursday, June 18, 2009 Up 0.9% Important. An indication of future economic activity. A smaller increase may lead to lower rates. Philadelphia Fed Survey Thursday, June 18, 2009 Down 16.4 Moderately important. A survey of business conditions in the Northeast. Weakness may lead to lower rates. Consumer Price Index The Consumer Price Index is widely accepted as the most important measure of inflation. The CPI is a measure of prices at the consumer level for a fixed basket of goods and services. The National Statistics Office and the Bureau of Agricultural Statistics of the Department of Agriculture collect price data for the computation of the CPI. Since it is an index number, it compares the level of prices to a base period. By comparing the level of the index at two different points in time, analysts can determine how much prices have risen in that period. Unlike other measures of inflation, which only factor domestically produced goods; the CPI takes into account imported goods as well. This is important due to the ever-increasing reliance of the US economy upon imported goods. Analysts primarily focus on the core rate of the CPI which factors out the more volatile food and energy prices. High oil prices continue to weigh heavily upon the financial markets. The health of the economy remains uncertain. The Fed has itself in a precarious position of wanting to stoke the economy amid the real possibility of increased inflation. Market participants expect the consumer price index to be critical heading into the Fed's meeting next week. Inflation friendly data may lead to improvements in mortgage interest rates. However, unexpected consumer price spikes may push interest rates higher in the short-term. A cautious approach to float/lock decisions is prudent. Market Comment - Week of June 8th, 2009 Mortgage bond prices had another terrible week pushing mortgage interest rates considerably higher. Personal income, outlays, construction spending, ISM Index, and payrolls data came in stronger than expected. This did little to help the already shattered bond market. Oil prices continued to escalate hitting over $70/barrel. The Fed attempts to keep rates in check were not very effective as selling pressure continued. Bernanke tried to calm the markets by reiterating forecasts of tame inflation but his words fell on deaf ears among bond traders. For the week interest rates rose by about 1 and 1/2 of a discount point. The Treasury auctions will once again take center stage, as the market has to deal with additional supply. Continued strength in the economic data will do little to help mortgage interest rates improve. -------------------------------------------------------------------------------- Economic Factors Economic Indicator Release Date Time Consensus Estimate Analysis 3-year Treasury Note Auction Tuesday, June 9, 2009 None Important. $35 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates. Trade Data Wednesday, June 10, 2009 $28.7 billion deficit Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates. 10-year Treasury Note Auction Wednesday, June 10, 2009 None Important. $19 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates. Fed "Beige Book" Wednesday, June 10, 2009 None Important. This Fed report details current economic conditions across the US. Signs of weakness may lead to lower rates. Retail Sales Thursday, June 11, 2009 Up 0.3% Important. A measure of consumer demand. A smaller than expected increase may lead to lower mortgage rates. Business Inventories Thursday, June 11, 2009 Down 1.0% Low importance. An indication of stored-up capacity. A stronger figure may lead to lower rates. 30-year Treasury Bond Auction Thursday, June 11, 2009 None Important. $11 billion of bonds will be auctioned. Strong demand may lead to lower mortgage rates. U of Michigan Consumer Sentiment Friday, June 12, 2009 68.6 Important. An indication of consumers' willingness to spend. Weakness may lead to lower mortgage rates. Payrolls Last week was a prime example of the divergence between the unemployment rate and payrolls figure along with the risk of floating into important data. Unemployment came in at 9.4%, higher than the expected 9.2%, while non-farm payrolls fell 345,000, not as much as the expected 520,000 decline. Mortgage bond prices fell and rates spiked higher. Bond traders hoped the report would provide a solid indication that the labor market remained weak. Unfortunately it left more uncertainty. The unemployment figure is derived from a household survey while the payrolls number comes from an employer report. Energy prices have risen considerably stoking inflation fears amid record debt levels. As a result the low mortgage interest rates that everyone considered a given have quickly gone away. The Fed continues to purchase mortgage bonds in an effort to keep mortgage interest rates low but they face a daunting task as the selling pressure continues. The Fed still has over $700b marked for purchasing additional mortgage bonds. The question remains whether that will be enough to help rates turn lower. So far it appears additional measures are needed. Market Comment - Week of June 1st, 2009 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 w