MARKET COMMENT
Mortgage bond prices finished the week lower which put upward pressure on rates. We started with higher rates early Monday morning but that reversed as stocks stumbled. Global equities were shaken as US and China trade tensions escalated. The Institute for Supply Management (ISM) printed at 59.3 which did not move rates much as it was near expectations. Factory orders rose 1.2% which was weaker than expected 1.8% increase. Weekly jobless claims were 242K. Analysts expected a reading of 225K. The US trade deficit was a higher than expected $57.6B. Unemployment was 4.1% versus the expected 4.0%. Payrolls rose 103K versus the expected 170K increase. We ended the week unchanged to worse by 1/8 a discount point.
LOOKING AHEAD
| Economic Indicator | Release Date & Time | Consensus Estimate | Analysis |
| Producer Price Index | Tuesday, April 10, 8:30 am, et |
Up 0.3%, Core up 0.2% |
Important. An indication of inflationary pressures at the producer level. Weaker figures may lead to lower rates. |
| 3-year Treasury Note Auction | Tuesday, April 10 1:15 pm, et |
None | Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates. |
| Consumer Price Index | Wednesday, April 11, 8:30 am, et |
Up 0.2%, Core up 0.2% |
Important. A measure of inflation at the consumer level. Weaker figures may lead to lower rates. |
| 10-year Treasury Note Auction | Wednesday, April 11, 1:15 pm, et |
None | Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates. |
| Weekly Jobless Claims | Thursday, April 12, 8:30 am, et |
242K | Important. An indication of employment. Higher claims may result in lower rates. |
| 30-year Treasury Bond Auction | Thursday, April 12, 1:15 pm, et |
None | Important. Bonds will be auctioned. Strong demand may lead to lower mortgage rates. |
| U of Michigan Consumer Sentiment | Friday, April 13, 10:00 am, et |
101.6 | 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, especially if China reduces their US Treasury holdings. Some fear this “nuclear” option as US and China continue to ramp up sanctions on one another. China holds over a trillion dollars of US debt. An aggressive move to dump their holdings could cause global chaos. Caution is the key heading into the auctions this week.
There is a real possibility of market swings. Mortgage interest rates remain historically favorable.
