MIG Market Watch, March 1st, 2021
Market Comment

Mortgage bond prices finished the week sharply lower which put significant upward pressure on rates. Rates worsened almost every day of the trading week. Inflation fears continued as officials and investors debated the effects of additional stimulus. Former Treasury Summers warned the proposed stimulus might result in “inflationary pressures of a kind we have not seen in a generation, with consequences for the value of the dollar and financial stability.” Treasury Secretary Yellen countered that inflation risks are possible but noted that Fed officials have tools to address those potential scenarios. The data was solid. Consumer confidence was 91.3 vs 91. New home sales were 923K vs 855K. Weekly jobless claims were 730K vs the expected 820K. Durable goods rose 3.4% vs 1.2%. GDP rose 4.1% as expected. Mortgage interest rates finished the week worse by approximately 1 ½ to 2 full discount points.


Looking Ahead
Economic Indicator Release Date & Time Consensus Estimate Analysis
ISM Index Monday, March 1,
10:00 am, et
58.9 Important. A measure of manufacturer sentiment. Weakness may lead to lower mortgage rates.
Construction Spending Monday, March 1,
10:00 am, et
Up 0.8% Low importance. An indication of economic strength. Significant weakness may lead to lower rates.
ADP Employment Wednesday, March 3,
8:30 am, et
168K Important. An indication of employment. Weakness may bring lower rates.
Fed “Beige Book” Wednesday, March 3,
2:00 pm, et
None Important. This Fed report details current economic conditions across the US. Signs of weakness may lead to lower rates.
Weekly Jobless Claims Thursday, March 4,
8:30 am, et
820K Important. An indication of employment. Higher claims may result in lower rates.
Revised Q4 Productivity Thursday, March 4,
8:30 am, et
Down 3.8% Important. A measure of output per hour. Improvement may lead to lower mortgage rates.
Factory Orders Thursday, March 4,
10:00 am, et
Up 1.9% Important. A measure of manufacturing sector strength. Weakness may lead to lower rates.
Employment Friday, March 5,
8:30 am, et
6.4%,
Payrolls +95K
Very important. An increase in unemployment or weakness in payrolls may bring lower rates.
Trade Data Friday, March 5,
8:30 am, et
$67.5B deficit Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates.

Inflation

Inflation is the enemy of fixed income investments such as mortgage-backed securities. Rising inflation causes prices to fall and rates to rise. We experienced massive mortgage interest rate spikes the past few weeks as inflation expectations changed.

Fed Chair Powell assured Congress that the economic recovery was still uncertain and downplayed the inflation risks. He stated, “We do expect that inflation will move up. But we don’t expect the effects on inflation will be particularly large or persistent.” We hope Powell is correct but in the short-term the mortgage rate increases are real and large. Be very cautious with any float/lock decisions in this period of mortgage interest rate volatility.

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