Mortgage Market Review - 5/10/10

This Morning…Monday, May 10, 2010:
Monday’s bond market has opened down sharply following news that the European Union has agreed to a bailout for Greece. The news has helped erase concerns about the global economy that the situation brought and fueled a stock market rally that has the Dow up over 410 points and the Nasdaq up 102 points. Unfortunately this proposed stability in the Eurpoean market has had a negative impact of mortgage rates which are higher this morning.

Last Week:
Mortgage bond prices rose last week pushing mortgage interest rates lower. Trading was once again dominated by foreign influences as the Greek debt concerns spread across the globe. US stocks fell precipitously Thursday afternoon. At one point the DOW was down over 900 points. This sent a flood of investor funds into mortgage bonds helping rates improve. The data for the week was mixed with higher than expected unemployment and a larger than expected payrolls figure. Oil prices fell to around $77/barrel, which helped alleviate inflation concerns. Overall interest rates recovered most of the losses from the week before.

This Week:
There is $78 billion of supply to bid this week. Tomorrow we have 3-yr notes to sell, Wednesday, 10-yr’s, and on Thursday, 30-yr bonds. Aside from that, the most significant economic data this week will be Friday's Retail Sales report, along with Industrial Production and Capacity Utilization. Import Prices, the Trade Balance, and Consumer Sentiment will round out a light week – there is nothing today. In case you haven’t noticed, gasoline prices are the highest they’ve been since October 2008.

EconomicIndicator
3-year Treasury Note Auction
Tuesday, May 11,1:15 pm, et
None
Important. $38 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
Trade Data
Wednesday, May 12,8:30 am, et
$39.5 billion deficit
Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates.
10-year Treasury Note Auction
Wednesday, May 12,1:15 pm, et
None
Important. $24 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
Weekly Jobless Claims
Thursday, May 13,8:30 am, et
410k
Moderately important. An increase in claims may bring lower rates.
30-year Treasury Bond Auction
Thursday, May 13,1:15 pm, et
None
Important. $16 billion of bonds will be auctioned. Strong demand may lead to lower mortgage rates.
Retail Sales
Friday, May 14,8:30 am, et
Up 0.4%
Important. A measure of consumer demand. A smaller than expected increase may lead to lower mortgage rates.
Industrial Production
Friday, May 14,9:15 am, et
Up 0.5%
Important. A measure of manufacturing sector strength. A lower than expected increase may lead to lower rates.
Capacity Utilization
Friday, May 14,9:15 am, et
73.3%
Important. A figure above 85% is viewed as inflationary. A decrease may lead to lower mortgage interest rates.
U Michigan Consumer Sentiment
Friday, May 14,10:00 am, et
73
Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.

Market Forecast:
The retail sales data Friday will be the most important event this week.
Overall, it likely will be another active week for mortgage rates. Besides Europe’s important economic news, look for the stock markets to be a major influence on trading. The most important day of the week is Friday with three reports on the agenda, including the sales data. The Treasury auctions will also take center stage as market participants cautiously await the result to determine foreign investor appetite for US debt instruments.
Today’s volatility does not come as a surprise and may actually end up making today the most active day of the week if Friday’s data does not reveal any significant variances.

Some Humor:
A barber kisses his wife goodbye and heads into work. Later that morning, a guy stuck his head into a barbershop and asked, “How long before I can get a haircut?”
The barber looked around the shop full of customers and said, “About 2 hours.”
The guy left.
A few days later, the same guy stuck his head in the door and asked, “How long before I can get a haircut?”
The barber looked around at the shop and said, “About 3 hours.”
The guy left.
A week later, the same guy stuck his head in the shop and asked, “How long before I can get a haircut?”
The barber looked around the shop and said, “About an hour and a half.”
The guy left.
The barber turned to his friend and said, “Hey, Bob, do me a favor. Follow that guy and see where he goes. He keeps asking how long he has to wait for a haircut, but then he doesn't ever come back.”
A little while later, Bob returned to the shop, laughing hysterically.
The barber asked, “So, where does that guy go when he leaves?”
Bob looked up and said, “Your house!”

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