MARKET COMMENT
Mortgage bond prices finished the week higher which put downward pressure on rates. Most of the improvements came Monday as stocks remained very volatile. Stocks rebounded a bit in response to the Super Tuesday election results but then resumed the selloff Thursday and Friday. Treasuries outperformed MBSs but both saw price increases and rate decreases. The Fed stepped in with a surprise rate cut (see below.) ADP employment was 183K versus the expected 170K. Factory orders fell 0.5%. Productivity was 1.2% vs 1.4%. Unemployment was 3.5%. Analysts looked for a reading of 3.6%. Payrolls surged higher with a reading of 273K vs 175K. Much of the data was dismissed as “dated” as coronavirus fears increased and global growth estimates were revised significantly lower. Mortgage interest rates finished the week better by 1/4 to 3/8 of a discount point.
LOOKING AHEAD
| Economic Indicator | Release Date & Time | Consensus Estimate | Analysis |
| 3-year Treasury Note Auction | Tuesday, March 10, 1:15 pm, et |
None | Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates. |
| Consumer Price Index | Wednesday, March 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, March 11, 1:15 pm, et |
None | Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates. |
| Weekly Jobless Claims | Thursday, March 12, 8:30 am, et |
208K | Important. An indication of employment. Higher claims may result in lower rates. |
| Producer Price Index | Thursday, March 12, 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. |
| 30-year Treasury Bond Auction | Thursday, March 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, March 13, 10:00 am, et |
97 | Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates. |
FED SURPRISE
The Fed made a surprise rate cut of 50 basis points last Tuesday to combat the economic drag of the coronavirus outbreak. It was not a complete surprise as the US Administration has been demanding the Fed act and analysts believed they would soon. However, the timing and magnitude of the cut caught many off guard. Most predicted a move at the mid-March meeting and a lot thought they would start slowly with a 25 basis point cut. Recent massive stock losses elevated investor and consumer fears. It appears the Fed believed a significant policy move was needed. The Fed stated: “The fundamentals of the U.S. economy remain strong. However, the coronavirus poses evolving risks to economic activity. In light of these risks and in support of achieving its maximum employment and price stability goals, the Federal Open Market Committee decided today to lower the target range for the federal funds rate by 1/2 percentage point, to 1 to 1 1/4 percent. The Committee is closely monitoring developments and their implications for the economic outlook and will use its tools and act as appropriate to support the economy.”
Mortgage-backed securities benefited from the cut in the short-term as prices rose and rates fell in response to the cut late Tuesday morning. The 10Y Treasury rate hit all-time lows. The MBS reaction though was within a narrow margin and not as strong as the Treasury movements.
