Market Comment
Mortgage bond prices finished the week flat which held rates steady. We started negatively, had some positive mid-week movements, and closed the week on a slightly negative note. The FDIC bailed out another regional bank which caused market instability. The Fed raised rates 25 basis points as expected and remained “data dependent.” The data generally showed economic strength. ISM index was 47.1 vs 46. Factory orders rose 0.9% vs 1.4%. ADP employment came in at 296K vs 142K. ISM Index was 51.9 as expected. Productivity fell 2.7% vs the expected 0.1% decrease. Unit labor costs rose 6.3% vs 3.9%. Weekly jobless claims were 242K vs 240K. Unemployment was 3.4% vs 3.6%. Payrolls came in at 253K vs 180K. Mortgage interest rates finished the week unchanged.
Looking Ahead
| Economic Indicator | Release Date & Time | Consensus Estimate | Analysis |
| 3-year Treasury Note Auction | Tuesday, May 9, 1:15 pm, et |
None | Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates. |
| Consumer Price Index | Wednesday, May 10, 8:30 am, et |
Up 0.4%, Core up 0.3% |
Important. A measure of inflation at the consumer level. Weaker figures may lead to lower rates. |
| 10-year Treasury Note Auction | Wednesday, May 10, 1:15 pm, et |
None | Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates. |
| Producer Price Index | Thursday, May 11, 8:30 am, et |
Up 0.3%, Core up 0.3% |
Important. An indication of inflationary pressures at the producer level. Weaker figures may lead to lower rates. |
| Weekly Jobless Claims | Thursday, May 11, 8:30 am, et |
239K | Important. An indication of employment. Higher claims may result in lower rates. |
| 30-year Treasury Bond Auction | Thursday, May 11, 1:15 pm, et |
None | Important. Bonds will be auctioned. Strong demand may lead to lower mortgage rates. |
| U of Michigan Consumer Sentiment | Friday, May 12, 10:00 am, et |
63 | Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates. |
Monetary Policy
The Federal remains the dominant force in the mortgage market. They will continue to drive mortgage rates where they want them to accomplish their goals. The Fed “voted to direct the Open Market Desk at the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the System Open Market Account.” They are instructed to:
-“Undertake open market operations as necessary to maintain the federal funds rate in a target range of 5 to 5 1/4 percent.
-Roll over at auction the amount of principal payments from the Federal Reserve’s holdings of Treasury securities maturing in each calendar month that exceeds a cap of $60 billion per month. Redeem Treasury coupon securities up to this monthly cap and Treasury bills to the extent that coupon principal payments are less than the monthly cap.
-Reinvest into agency mortgage-backed securities (MBS) the amount of principal payments from the Federal Reserve’s holdings of agency debt and agency MBS received in each calendar month that exceeds a cap of $35 billion per month.
-Allow modest deviations from stated amounts for reinvestments, if needed for operational reasons.
-Engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve’s agency MBS transactions.”
