MARKET COMMENT
Mortgage bond prices finished the week lower which put upward pressure on rates. Rates worsened throughout most of the week but got a slight positive rebound Thursday morning. Unfortunately, it was not enough to close the week positively. Global financial markets took a hit early Monday as reports indicated a new more dangerous variant of the coronavirus was spreading. Q3 GDP was 33.4% vs the expected 33.1%. Existing home sales were 6.69M vs 6.84M. Income fell 1.1% vs the expected 0.3% decline. Spending fell 0.4% vs 0.2%. Core PCE inflation was unchanged vs the expected 0.1% increase. Weekly jobless claims were 803K vs the expected 885K. FHFA housing was up 1.5% vs 1.7%. Sentiment was 80.7 vs 80.8. New home sales were 841K vs the expected 1M. Mortgage interest rates finished the week worse by 1/8 to 1/4 of a discount point.
LOOKING AHEAD
| Economic Indicator | Release Date & Time | Consensus Estimate | Analysis |
| Consumer Confidence | Tuesday, Dec. 29, 10:00 am, et | 88.2 | Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates. |
| Weekly Jobless Claims | Thursday, Dec. 31, 8:30 am, et | 805K | Important. An indication of employment. Higher claims may result in lower rates. |
| New Year’s Holiday | Friday, Jan. 1 | Important. Shortened trading week and likely thin conditions could result in volatility. |
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, in reality 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 Wednesday mortgage-backed securities fell 4/32 at 10 am ET pricing while the 10-year Treasury fell 11/32nds and the 30-year Treasury fell 41/32nds at that time. This is a prime example where anyone that looked solely at Treasuries thought the mortgage market worsened considerably when it only worsened a tiny bit.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 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. Trusted mortgage professionals have access to mortgage-backed securities data and can assist you in making wise home financing decisions.
