MIG Market Watch, November 6th, 2023
Market Comment

Mortgage bond prices finished the week significantly higher which pushed rates lower. We started a little weaker Monday and remained relatively flat Tuesday as the data was solid. FHFA housing rose 0.6% vs 0.5%. Consumer confidence was 102.6 vs 100. Q3 ECI rose 1.1% vs 1.0%. ADP employment came in at 113K vs 100K. The Fed left rates unchanged Wednesday, sentiment quickly shifted, and MBS buying emerged. The data the latter portion of the week added to the positive MBS sentiment. The heavyweight employment report showed unemployment at 3.9% vs 3.8%. Payrolls rose 150K vs 180K. ISM Index was 46.7 vs 49. Weekly jobless claims were 217K vs 214K. Productivity rose 4.7% vs 3.6%. Factory orders rose 2.8% vs 1.0%. Mortgage interest rates finished the week better by approximately a full discount point and more.

Looking Ahead
Economic Indicator Release Date & Time Consensus Estimate Analysis
Trade Data Tuesday, Nov. 7,
8:30 am, et
$60.3B deficit Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates.
3-year Treasury Note Auction Tuesday, Nov. 7,
1:15 pm, et
None Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.
Consumer Credit Tuesday, Nov. 7,
3:00 pm, et
$12B Low importance. A significantly large increase may lead to lower mortgage interest rates.
10-year Treasury Note Auction Wednesday, Nov. 8,
1:15 pm, et
None Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.
Weekly Jobless Claims Thursday, Nov. 9,
8:30 am, et
225K Important. An indication of employment. Higher claims may result in lower rates.
30-year Treasury Bond Auction Thursday, Nov. 9,
1:15 pm, et
None Important. Bonds will be auctioned. Strong demand may lead to lower mortgage rates.
U of Michigan Consumer Sentiment Friday, Nov. 10,
10:00 am, et
65 Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.

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. Once data starts consistently showing the rate hikes are working the Fed will be able to pivot their rate hike policy. Until then, a cautious approach to float/lock decisions is prudent.