MIG Market Watch, February 19th, 2024
Market Comment

Mortgage bond prices finished the week sharply lower which put upward pressure on rates. We saw larger swings amid higher-than-expected inflation readings. Consumer prices rose 0.3% vs 0.2% last month. The Core was up 0.4% vs 0.3%. Year-over-year CPI prices rose 3.1% vs 2.9%. YOY Core prices rose 3.9% vs 3.7%. Producer prices rose 0.3% vs 0.1%. The Core rose 0.5% vs 0.1%. The rest of the data was mixed. Housing starts were 1.331M vs 1.46M. Consumer sentiment was 79.6 vs 80. NAHB housing was 48 vs 46. Retail sales fell 0.8% vs the expected 0.1% decrease. Weekly jobless claims were 212K vs 220K. Production fell 0.1% vs up 0.3%. Capacity use was 78.5% vs 78.8%. 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
Leading Economic Indicators Tuesday, Feb. 20,
10:00 am, et
Down 0.3% Important. An indication of future economic activity. Weakness may lead to lower rates.
2-year Treasury Note Auction Wednesday, Feb. 21,
1:15 pm, et
None Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.
Fed Minutes Wednesday, Feb. 21,
2:00 pm, et
None Important. Details of the last Fed meeting will be thoroughly analyzed.
Weekly Jobless Claims Thursday, Feb. 22,
8:30 am, et
217K Important. An indication of employment. Higher claims may result in lower rates.
Existing Home Sales Thursday, Feb. 22,
10:00 am, et
3.95M Low importance. An indication of mortgage credit demand. Significant weakness may lead to lower rates.
20Y Treasury Bond Auction Thursday, Feb. 22,
1:15 pm, et
None Important. Bonds will be auctioned. Strong demand may lead to lower mortgage rates.
30-year Treasury TIPS Auction Friday, Feb. 23,
1:15 pm, et
None Important. TIPS will be auctioned. Strong demand may lead to lower mortgage rates.

Higher Inflation

Mortgage interest rates are higher lately as inflation is significantly above the Fed’s 2% goal and recent inflation readings have traders concerned the Fed pivot that was expected soon will be pushed forward in time. Higher than expected producer and consumer inflation readings sent MBS prices lower and rates upward last week.

Comments from Fed officials added uncertainty. The Fed gave indications last December of rate cuts this year and many anticipated those starting in March. Fed Chair Powell pushed back on that timeframe and the outlook has shifted considerably with the recent data. Fed President Raphael Bostic told CNN, “I really see the first move coming sometime in the summertime.” Fed Official Michael Barr said, “January’s report on consumer product index inflation is a reminder that the path back to 2% inflation may be a bumpy one.”
The timing of the pivot will remain uncertain until the overwhelming data shows the inflation battle is won. The last thing the Fed wants to do is cut rates only to have to raise rates later.

When a Fed official warns things may be “bumpy” then caution is advised. Now is a good time to take advantage of rates at these levels to avoid exposure to volatility in the weeks ahead.