MIG Market Watch, November 7th, 2022
Market Comment

Mortgage bond prices finished the week sharply lower which put upward pressure on rates. We started the week on a negative note amid continued inflation fears. Liquidity concerns dominated newswires. The Fed raised rates 75 basis points as expected and indicated, “Inflation remains elevated, reflecting supply and demand imbalances.” They continued, “The Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time.” The data was mixed. ADP employment was 239K vs 198K. Productivity rose 0.3% vs 0.5%. Factory orders rose 0.3% as expected. Unemployment was 3.7% vs 3.6%. Non-farm payrolls were 261K vs 220K. Mortgage interest rates finished the week worse by approximately 3/4 of a discount point.

Looking Ahead
Economic Indicator Release Date & Time Consensus Estimate Analysis
Consumer Credit Monday, Nov. 7,
3:00 pm, et
$33B Low importance. A significantly large increase may lead to lower mortgage interest rates.
3-year Treasury Note Auction Tuesday, Nov. 8,
1:15 pm, et
None Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.
10-year Treasury Note Auction Wednesday, Nov. 9,
1:15 pm, et
None Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.
Weekly Jobless Claims Thursday, Nov. 10,
8:30 am, et
222K Important. An indication of employment. Higher claims may result in lower rates.
Consumer Price Index Thursday, Nov. 10,
8:30 am, et
Up 0.7%,
Core up 0.5%
Important. A measure of inflation at the consumer level. Weaker figures may lead to lower rates.
Veterans Day Friday, Nov. 11,
10:00 am, et
Important. No trading Friday. Shortened trading week may result in volatility.

Credit Demand

Inflation is typically the most important focus for the mortgage interest rate market. A lot of increases in interest rates also come following stronger stocks. As stocks struggle, we often see rates improve. In addition, mortgage bonds often benefit from global economic uncertainty as investors search for safe havens amid economic concerns in the euro zone and elsewhere. This flight to quality buying of mortgage bonds helps push prices higher and mortgage interest rates lower.

The level of interest rates reflects the balance between the supply of money from investors and the demand for money by borrowers. Rising inflationary expectations and uncertainty about the performance of the bonds cause investors to require higher rates of return on investments. This compensates for the erosion of the principal that eventually is returned to them or the risk of non-performance. Regardless of inflation levels, rising economic activity can increase the demand for investors’ funds, and thereby lead to higher interest rates. Investors pulling money out of bonds and into stocks could pressure mortgage rates. The demand for money diminishes as the economy struggles. The Fed raises interest rates to buffer demand from businesses and consumers. The Fed hopes to rebalance supply and demand pressures to help inflation fall to more manageable levels. They interpret an inflation rate of 2 percent as consistent with price stability. Once data starts consistently showing the rate hikes are working the Fed will be able to pivot their rate hike policy. Until then, the current risk for rates is to the upside.