MARKET COMMENT
Mortgage bond prices finished the week mixed with conventional prices near unchanged on the week and government prices lower. Rates fell the first portion of the week ahead of the Fed meeting. The Fed raised rates as expected but the projection of three additional hikes later this year was countered by talk of possibly only two. Weekly jobless claims printed at 229K and continuing claims, a summation of all receiving benefits, at 1,828K. Claims were expected at 225K and continuing claims at 1,879K. Housing prices continued to climb. The FHFA Housing Price Index rose 0.7% in January and up 7.8% over the last 12 months. Durable goods orders rose 3.1%. New home sales rose 618K. We ended the week unchanged to worse by approximately 1/4 of a discount point.
LOOKING AHEAD
| Economic Indicator | Release Date & Time | Consensus Estimate | Analysis |
| 2-year Treasury Note Auction | Monday, March 26, 1:15 pm, et | None | Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates. |
| Consumer Confidence | Tuesday, March 27, 10:00 am, et | 131 | Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates. |
| 5-year Treasury Note Auction | Tuesday, March 27, 1:15 pm, et | None | Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates. |
| Q4 GDP | Wednesday, March 28, 8:30 am, et | Up 2.5% | Very important. The aggregate measure of US economic production. Weakness may lead to lower rates. |
| 7-year Treasury Note Auction | Wednesday, March 28, 1:15 pm, et | None | Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates. |
| Weekly Jobless Claims | Thursday, March 29, 8:30 am, et | 225K | Important. An indication of employment. Higher claims may result in lower rates. |
| Personal Income and Outlays | Thursday, March 29, 8:30 am, et | Up 0.3%, Up 0.2% | Important. A measure of consumers’ ability to spend. Weakness may lead to lower mortgage rates. |
| PCE Core Inflation | Thursday, March 29, 8:30 am, et | Up 0.3% | Important. A measure of price increases for all domestic personal consumption. Weaker figure may help rates improve. |
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 is a factor that helped mortgage interest rates remain historically low.
There is a real threat that foreign investors will reduce their U.S. debt holdings. 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. The inverse is also true.
