Market Comment
Mortgage bond prices finished the week lower which put upward pressure on rates. We started negatively and continued that direction for most of the week. US debt ceiling limits and continued regional bank failure concerns impacted rates. Yellen said “we have to default” if Congress doesn’t raise the debt ceiling. The data was mixed. Retail sales rose 0.4% vs 0.6%. Industrial production rose 0.5% vs unchanged. Capacity use was 79.7% as expected. NAHB housing was 50 vs 45. Housing starts were 1.401M vs 1.4M. Weekly jobless claims were 242K vs 254K. The Philadelphia Fed business conditions index fell 10.3 vs the expected 11.3 decline. Leading economic indicators fell 0.6% as expected. Mortgage interest rates finished the week worse by approximately 5/8 of a discount point.
Looking Ahead
| Economic Indicator | Release Date & Time | Consensus Estimate | Analysis |
| New Home Sales | Tuesday, May 23, 10:00 am, et |
660K | Important. An indication of economic strength and credit demand. Weakness may lead to lower rates. |
| 2-year Treasury Note Auction | Tuesday, May 23, 1:15 pm, et |
None | Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates. |
| 5-year Treasury Note Auction | Wednesday, May 24, 1:15 pm, et |
None | Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates. |
| Fed Minutes | Wednesday, May 24, 2:00 pm, et |
None | Important. Details of the last Fed meeting will be thoroughly analyzed. |
| Q1 GDP | Thursday, May 25, 8:30 am, et |
Up 3.9% | Very important. The aggregate measure of US economic production. Weakness may lead to lower rates. |
| 7-year Treasury Note Auction | Thursday, May 25, 1:15 pm, et |
None | Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates. |
| Personal Income and Outlays | Friday, May 26, 8:30 am, et |
Up 0.3%, Up 0.1% |
Important. A measure of consumers’ ability to spend. Weakness may lead to lower mortgage rates. |
| PCE Core Inflation | Friday, May 26, 8:30 am, et |
Up 0.1% | Important. A measure of price increases for all domestic personal consumption. Weaker figure may help rates improve. |
| Durable Goods Orders | Friday, May 26, 8:30 am, et |
Up 2.2% | Important. An indication of the demand for “big ticket” items. Weakness may lead to lower rates. |
Auctions
US Treasury bonds do not directly dictate fixed mortgage interest rate pricing however they do have an indirect impact. Both Treasuries and mortgage bonds often track in the same direction, but this is not always the case. There are many times that Treasuries and mortgage bonds move inversely. Despite the overwhelming size of the US economy, foreign investors can still influence the financial markets. When foreign economies struggle foreign investors often purchase US based investments including mortgage bonds. This demand usually causes mortgage bond prices to rise and interest rates to fall. This flight to quality buying is a factor that helps mortgage interest rates remain lower. The Treasury auctions this week will be important in determining the current appetite of foreign investors for dollar denominated securities.
