![Mortgage Investors Group in [Dynamic1]](../assets/images/mortgage-investors-group.svg)
Market Comment
Mortgage bond prices finished the week lower which put upward pressure on rates. Rates worsened Monday, stayed higher mid-week, and fell Thursday afternoon into Friday morning. Negotiations between the U.S. and China gained early focus. Both nations agreed to slash tariffs for 90 days while they worked on a longer-term solution. Stocks shot higher at the expense of US debt instruments. The data showed weakness with very little price pressures. Consumer prices rose 0.2% vs 0.3%. The Core was up 0.2% vs 0.3%. Producer prices fell 0.5% vs up 0.2%. The core was down 0.4% vs up 0.3%. NAHB housing was 34 vs 40. Retail sales rose 0.1% vs the expected unchanged reading. Weekly jobless claims were 229K as expected. Mortgage interest rates finished the week worse by approximately 1/8 of a discount point.
LOOKING AHEAD
| Economic Indicator | Release Date & Time | Consensus Estimate | Analysis |
|---|---|---|---|
| Leading Economic Indicators | Monday, May 19, 10:00 am, et | Down 0.8% | Important. An indication of future economic activity. Weakness may lead to lower rates. |
| 20-year Treasury Bond Auction | Wednesday, May 21, 1:15 pm, et | None | Important. Bonds will be auctioned. Strong demand may lead to lower mortgage rates. |
| Weekly Jobless Claims | Thursday, May 22, 8:30 am, et | 232K | Important. An indication of employment. Higher claims may result in lower rates. |
| Existing Home Sales | Thursday, May 22, 10:00 am, et | 4.1M | Low importance. An indication of mortgage credit demand. Significant weakness may lead to lower rates. |
| 10-year Treasury TIPS Auction | Thursday, May 22, 1:15 pm, et | None | Important. TIPS will be auctioned. Strong demand may lead to lower mortgage rates. |
| New Home Sales | Friday, May 23, 10:00 am, et | 700K | Important. An indication of economic strength and credit demand. 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. Treasuries are used as a hedge for the interest rate risk associated with mortgage-backed security investing. Mortgage-backed securities have the potential for prepayment that Treasuries do not. 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 movement of US 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 one of the factors that helps mortgage interest rates remain historically low. The Fed recently noted that, “In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.”
The Treasury auctions this week will be important in determining the current appetite of foreign investors for dollar denominated debt securities amid all the tariff developments. Demand has been generally good as of late, but auctions of different durations often vary in their results. Be alert heading into the auctions.
