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MIG Market Watch, December 23rd, 2019

MIG Market Watch, December 23rd, 2019


MIG Market Watch, December 23rd, 2019

MARKET COMMENT
Mortgage bond prices finished the week lower which put upward pressure on rates. Rates were flat Monday and Tuesday mornings despite solid data. The NAHB housing index was 76 versus the expected 69. Housing starts were 1.365M versus 1.34M. Industrial production rose 1.1% which was higher than the anticipated 0.8% increase. Capacity use was 77.3% and in line with forecasts. Prices fell and rates rose Wednesday morning in response to reports that Former Fed Chair Greenspan believes inflation will “inevitably rise.” Some weaker data Thursday helped temper some of the selling pressure but wasn’t enough to turn things positive. Weekly jobless claims were higher than expected while new home sales and Philadelphia Fed business conditions were lower than expected. Q3 GDP was 2.1% as expected. Mortgage interest rates finished the week worse by approximately 1/8 to 1/4 of a discount point.

LOOKING AHEAD

Economic Indicator Release Date & Time Consensus Estimate Analysis
New Home Sales Monday, Dec. 23,
10:00 am, et
735K Important. An indication of economic strength and credit demand. Weakness may lead to lower rates.
2-year Treasury Note Auction Monday, Dec. 23,
1:15 pm, et
None Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.
Durable Goods Orders Tuesday, Dec. 24,
8:30 am, et
Up 0.8% Important. An indication of the demand for “big ticket” items. Weakness may lead to lower rates.
5-year Treasury Note Auction Tuesday, Dec. 24,
1:15 pm, et
None Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.
Weekly Jobless Claims Thursday, Dec. 26,
8:30 am, et
225K Important. An indication of employment. Higher claims may result in lower rates.
7-year Treasury Note Auction Thursday, Dec. 26,
1:15 pm, et
None Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.

 

DISPARITY
The 10 and 30-year Treasury bond yields are often viewed as “benchmarks”, reflecting the overall state of interest rates in the US economy. Many people concerned about mortgage interest rates track these bonds as a barometer for mortgage interest rates. However, the Treasury and mortgage markets trade independently.

The supply and demand characteristics of Treasury bonds and mortgage-backed securities (MBS) differ significantly. Treasury securities represent money needed to fund the operations of the US government. MBSs, on the other hand, represent borrowing by homeowners.

Information related to Treasury bonds is relatively easy to come by. Almost every major news medium reports changes. On the other hand, accurate mortgage interest rate information is difficult and costly to obtain. In the absence of information directly related to the mortgage interest rate markets, Treasury information can be useful in that the bond market generally trends in the same direction. However, mortgage interest rates can vary significantly. In fact, many times the Treasuries will trade wildly while MBS only see minor price changes and vice versa. Last Monday morning mortgage-backed securities were flat at 10 am ET pricing while the 10-year Treasury fell 12/32nds and the 30-year Treasury fell 22/32nds at that time. This is a prime example where anyone that looked solely at Treasuries thought the mortgage market worsened when it held steady. The data provides a valuable lesson into the differences between treasury bonds and mortgage-backed securities. This is an example of why looking solely at treasuries can sometimes mislead people. Keying in on the correct information can mean the difference between saving and losing a tremendous amount of money when making float and lock decisions.

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