Mortgage Market Review 6/22/09

This Morning…Monday, June 22, 2009:
Mortgage backed securities (MBS) prices are higher (rates slightly lower) after the World Bank cut its forecast for global economic growth this year, causing stocks and commodities to retreat, benefiting fixed income assets like MBS; The DOW is down 100pts. No economic data will be released today, though the Fed will be purchasing Treasuries which is a part of the plan to lower borrowing costs and revive the economy. Investors are focused on the upcoming FOMC meeting that begins tomorrow, looking for possible news on changes in Fed's view on the economy. There is a risk that higher rates will hold back the budding economic recovery by lifting borrowing costs for homeowners and buyers. Volatility will continue in MBS markets as supply concerns weigh heavy on traders minds.
Last Week:
Mortgage bond prices remained volatile in up and down trading last week. We started the week in positive territory only to have the gains erased as stronger than expected housing starts data shocked the market Tuesday and overshadowed the tame inflation data. Producer and consumer price data showed inflation remained in check however oil prices remained volatile. US debt concerns continued as the Treasury announced record auctions ahead. For the week interest rates remained near unchanged.
This Week:
Even with no economic data released on Monday, this week will a busy one with large Treasury auctions June 23-25 and the FOMC meeting that begins Tuesday and concludes Wednesday with a policy statement due out at 11:15am pt. The Fed may acknowledge the economy has improved since their last gathering, while reassuring investors that interest rates will stay low for the foreseeable future, preventing borrowing costs from climbing and undermining tentative signs of recovery. The Fed statement will likely have a significant impact on MBS markets. On Tuesday Existing Home Sales will be released and New Home Sales are due on Wednesday, giving traders a glimpse of the current housing market. Also on Wednesday is information on mortgage applications from the Mortgage Bankers Association and Durable Goods Orders, an important indicator of economic activity. Wednesday shapes up as the important day of the week, with a 5yr note auction and the FOMC policy statement. Thursday brings Gross Domestic Product (GDP) final revision figures and Jobless Claims too. The week ends with Personal Income/Spending numbers, Personal Consumption Expenditure (PCE) and Consumer Sentiment all set for Friday.

EconomicIndicator
Existing Home Sales
Tuesday, June 23,10:00 am, et
Up 3.2%
Low importance. An indication of mortgage credit demand. Significant weakness may lead to lower rates.
2-year Treasury Note Auction
Tuesday, June 23,1:30 pm, et
None
Important. $40 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
Durable Goods Orders
Wednesday, June 24, 8:30 am, et
Down 0.9%
Important. An indication of the demand for "big ticket" items. Weakness may lead to lower rates.
New Home Sales
Wednesday, June 24, 10:00 am, et
Up 2.3%
Important. An indication of economic strength and credit demand. Weakness may lead to lower rates.
5-year Treasury Note Auction
Wednesday, June 24, 1:30 pm, et
None
Important. $37 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
Fed Meeting Adjourns
Wednesday, June 24, 2:00 pm, et
No change
Important. Few expect the Fed to change rates, but volatility may surround the adjournment of this meeting.
Q1 GDP final revision
Thursday, June 25,8:30 am, et
Down 5.7%
Moderately important. A measure of US economic production. Weakness may lead to lower rates.
7-year Treasury Note Auction
Thursday, June 25,1:30 pm, et
None
Important. $27 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
Personal Income and Outlays
Friday, June 26,8:30 am, et
Up 0.2%,Up 0.4%
Important. A measure of consumers’ ability to spend. Weakness may lead to lower mortgage rates.
U of Michigan Consumer Sentiment
Friday, June 26,10:00 am, et
69.0
Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.

Market Forecast:
All eyes will be focused on the Fed meeting Wednesday. No one expects the FED to raise rates, but the market is looking to see what their assessment of the US economy is. A cautious approach to float/lock decisions is prudent heading into the meeting. Market volatility is likely.
Some Humor:
At St. Mary's Church they have a weekly husbands' marriage seminar. At the last session, the priest asked Giuseppe, who was approaching his 50th wedding anniversary, to take a few minutes and share how he had managed to stay happily married to the same woman for so many years.
Giuseppe replied to the assembled husbands, “Wella, I've a-tried to treat her nicea, spenda da money on her, but besta of alla is, I tooka her to Italy for our 25th anniversary!”
The priest responded, “Giuseppe, you are an amazing inspiration to all the husbands here! Please tell us what you are planning for your 50th anniversary?”
Giuseppe proudly replied, “I'ma gonna go get her.”