![Mortgage Investors Group in [Dynamic1]](../assets/images/mortgage-investors-group.svg)
Market Comment
Mortgage bond prices finished the week sharply lower which put significant upward pressure on rates. We started on a negative note as traders positioned themselves ahead of the Fed rate increase Wednesday. The Fed raised rates 25 basis points as expected. Treasury Secretary Yellen recently came out and said we should expect “uncomfortably high” inflation this year. Weaker than expected data did little to temper the selling pressure. Producer prices rose 0.8% as expected. The core, which excludes volatile food and energy prices, rose 0.2% vs 0.7%. Year over year PPI rose 10% as expected and the core rose 8.4% vs 8.7%. Housing starts were 1769K vs 1680K. Weekly jobless claims were 214K vs 222K. The Philadelphia Fed index was 27.4 vs 12. Leading economic indicators rose 0.3% as expected. Mortgage interest rates finished the week worse by a full discount point.
Looking Ahead
| Economic Indicator | Release Date & Time | Consensus Estimate | Analysis |
| New Home Sales | Wednesday, March 23, 10:00 am, et |
815K | Important. An indication of economic strength and credit demand. Weakness may lead to lower rates. |
| 20-year Treasury Bond Auction | Wednesday, March 23, 1:15 pm, et |
None | Important. Bonds will be auctioned. Strong demand may lead to lower mortgage rates. |
| Durable Goods Orders | Thursday, March 24, 8:30 am, et |
Down 0.5% | Important. An indication of the demand for “big ticket” items. Weakness may lead to lower rates. |
| Weekly Jobless Claims | Thursday, March 24, 8:30 am, et |
205K | Important. An indication of employment. Higher claims may result in lower rates. |
| 10-year Treasury TIPS Auction | Thursday, March 24, 1:15 pm, et |
None | Important. TIPS will be auctioned. Strong demand may lead to lower mortgage rates. |
| U of Michigan Consumer Sentiment | Friday, March 25, 10:00 am, et |
59.7 | Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates. |
Mortgage Rates Volatile
Mortgage interest rates continued to fluctuate wildly with major spikes higher last week as the Fed raised rates and signaled they will reduce their Treasury and MBS holdings, government officials warned of high inflation this year, and the war in Ukraine continued. Fed Chair Powell explained that “as we raise interest rates that should gradually slow down demand for the interest sensitive parts of the economy, but just enough so that it is better matched with supply, and that will bring inflation down over time.” That is good for the long-term if they can accomplish their goal but in the short-term higher inflation hurts everyone.
The core challenge investors and the financial markets face is pricing anything in this environment. Risk models that worked during periods of stability do not necessarily return an accurate picture of risks during a global viral pandemic, escalating global economic tensions, sanctions, and more. For example, what is the value of a hotel chain if they stop doing business in other countries? In the case of a stock the value could fluctuate considerably in response to the uncertainty. The same is true for mortgage- backed securities (the bonds the dictate mortgage interest rate pricing.) What is the value if the performance of the investment could be in question? What is the value as the Fed sells their MBS holdings? What is the value if inflation pushes considerably higher? Will an MBS perform in the future like it has historically?
The point is that the MBS market is subject to all the current uncertainty that has struck every facet of life and business. Be very cautious in these volatile times.
