Mortgage bond prices remain positive this morning extending the gains from last Friday.
There is no data today. Traders will likely look to stocks to help guage mortgage interest rate direction. The DOW is currently down over 130 points.
Global economic uncertainty continues to dominate trading. The EU approved a $113b bailout for Ireland over the weekend. Rumors continue to swirl about Portugal and Spain being next.
Mortgage bond prices opened higher Tuesday morning applying downward pressure to mortgage rates. Rates are finding support following an incident where North and South Korea exchanged artillery fire overnight. In times of global uncertainty, traders seek the safety of US debt. This is call flight to safety buying. Lets hope the US is always seen as a safe place to park money.
In news released this morning, the US economy expanded at a 2.5% rate in the third quarter. This data was near expectation for a read of 2.4% and had no effect on trade.
Market analysts are now waiting for stocks to begin trade at 9:30 am ET and for the release of existing home sales data set for 10:00 am ET to help gauge interest rate direction. This afternoon the Treasury will auction $35B in 5-year notes with results by 1:15 pm ET.
Mortgage bond prices remain higher Monday morning erasing the losses seen Friday afternoon and more. Rates are receiving support from after Ireland received an estimated $95B euro bailout from the EU and IMF. In addition, lower stocks are also supporting rates.
With no economic news set for release today, traders will spend the day watching stocks to help gauge interest rate direction. At the 10:00 am price point, the DOW was down 21-points.
Mortgage bond prices got crushed last week pushing rates considerably higher. Trading started negatively Monday when stronger than expected retail sales figures piled on top of the weakness seen the prior week. There was considerable profit taking as traders sold bonds. Tame inflation readings helped buffer some of the price increases and the Fed’s bond purchasing also helped but they were not enough to stem the negative trend of overall rising rates. For the week interest rates finished worse by about 1 1/2 discount points.
The bond market will be closed Thursday for Thanksgiving. The market will also close at 2 pm ET Friday. This shortened trading week and the likely thin trading conditions could result in continued wild market swings.
Date & Time
|Q3 GDP second estimate||Tuesday, Nov. 23,
8:30 am, et
|2.4%||Important. The aggregate measure of US economic production. Weakness may lead to lower rates.|
|Existing Home Sales||Tuesday, Nov. 23,
10:00 am, et
|4.4m||Low importance. An indication of mortgage credit demand. Weakness decrease may lead to lower rates.|
|Personal Income and Outlays||Wednesday, Nov. 24,
8:30 am, et
|Important. A measure of consumers’ ability to spend. Weakness may lead to lower mortgage rates.|
|PCE Core Inflation||Wednesday, Nov. 24,
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||Wednesday, Nov. 24,
8:30 am, et
|Down 0.3%||Important. An indication of the demand for “big ticket” items. Weakness may lead to lower rates.|
|U of Michigan Consumer Sentiment||Wednesday, Nov. 24,
10:00 am, et
|69.4||Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.|
|New Home Sales||Wednesday, Nov. 24,
10:00 am, et
|312k||Important. An indication of economic strength and credit demand. Weakness may lead to lower rates.|
|Fed Minutes||Wednesday, Nov. 24,
2:00 pm, et
|None||Important. Details of the last Fed meeting will be thoroughly analyzed.|
The US Treasury will auction $35 billion of 2Y notes, $35 billion of 5Y notes, and $29 billion of 7Y notes this week. 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.
The markets usually focus on the foreign demand component of the auction results. Despite the overwhelming size of the US economy, foreign investors can still have an effect on moving the financial markets. When foreign economies struggle foreign investors often purchase US based investments including mortgage bonds. This increase in demand usually causes mortgage bond prices to rise and interest rates to fall. This flight to quality buying was one of the factors that helped mortgage interest rates remain historically low in years past.
The Treasury auctions this week will be important in determining the current appetite of foreign investors for dollar denominated securities. If this week’s auctions are poorly bid mortgage bond prices could fall pressuring mortgage interest rates higher.
Mortgage bonds remain near unchanged holding the gains from yesterday afternoon.
We were able to close positive yesterday despite the DOW closing up 173 points. The DOW is currently down 49.
There is no data set for release today, but news that China has tightened their lending standards – for the second time in two weeks – is grabbing the market’s attention this morning.
Over and above their normal banking reserve requirements, China is now requiring their banks to set aside additional capital in reserves. This is being done in an effort to drain money from their financial system, and stave off inflation…which now stands at a overheated 4.4% and represents a 2 year high. So while US Stocks are lower this morning – as is the US Dollar – Bonds are not making any gains, due to the inflation threat in China. Why? Because the inflation threat in China will continue to be combated with further rate hikes by the People’s Bank of China…and if rates move higher abroad, global investors in search of the highest yield may find foreign Bonds increasingly more attractive.
Yesterday, the Treasury announced that it will purchase $99B in 2, 5 and 7-Year Notes during the holiday shortened week on Monday, Tuesday and Wednesday. With trading volume a little thinner due to fewer Traders working during a holiday week, and all this fresh new Bond supply coming to market – we could see the present high volatility pick up a notch further still.