Mortgage Market Review - 6/7/10

Good morning. There were some interesting statements late last week regarding the longer term view about interest rates that I thought I’d mention. Atlanta Fed's Lockhart said that the Fed might need to raise rates to counter inflation even with high unemployment. "Good policy, even in circumstances of unacceptable levels of unemployment, may incorporate higher interest rates. The time is approaching when it will be appropriate to consider recalibrating interest rate policy." He added, "as the economy continues to improve and financial markets find firmer ground, extraordinarily low policy rates will not be needed to promote recovery and will become inconsistent with maintaining price stability." Lockhart noted inflation remained under control for now. If you are on the fence regarding a refinance or a possible home purchase, now is a great time to take advantage of mortgage interest rates at these historically low levels to avoid future market volatility, especially with the recent decline in rates and remarks like Lockhart’s hitting the market. Give me a call and I’d be happy to run some scenarios for you to see if it would be worthwhile.
Thanks for taking the time to read this over. Have a great week.

Fred

This Morning…Monday, June 7, 2010
Most rate prices held steady today as mortgage bonds hold onto Friday’s gains. The Euro is at fresh 4 year lows as speculative talk of parity with the dollar gains momentum. Stocks attempted to pare some of last week’s losses after positive economic news out of Germany, an about face from Hungary over it’s state of affairs and an overall more sober Monday mindset compared to Friday’s frenzy seem to calm the markets a bit. However the options market indicates a record low level of confidence in the market and it appears to be showing up today as stocks have reversed course this morning and are once again heading lower and bonds are benefiting. Little in economic news was released today but we have a round of Treasury auctions beginning tomorrow.

Last Week:
Mortgage bond prices rose last week pushing mortgage interest rates lower. We were negative through Thursday as stocks performed generally well until Friday’s data was released. Fortunately bond prices surged higher Friday morning following the weaker than expected payrolls component of the employment report. In addition, news of a troubled Hungarian economy reignited global fears and resulted in flight to quality buying of US debt instruments. Stocks fell precipitously Friday and interest rates improved.

This Week:
This week we start off with no scheduled news today or tomorrow, but on Wednesday have the Fed's Beige Book which detail current economic conditions across the country. The Retail Sales report will be released on Friday. There will, however, be Treasury auctions tomorrow, Wednesday, and Thursday.

EconomicIndicator
Consumer Credit
Monday, June 7,3:00 pm, et
Down $4.3 billion
Low importance. A significantly larger than expected increase may lead to lower mortgage interest rates.
3-year Treasury Note Auction
Tuesday, June 8,1:15 pm, et
None
Important. $36 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
10-year Treasury Note Auction
Wednesday, June 9, 1:30 pm, et
None
Important. $21 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
Fed "Beige Book"
Wednesday, June 9, 2:00 pm, et
None
Important. This Fed report details current economic conditions across the US. Signs of weakness may lead to lower rates.
Trade Data
Thursday, June 10,8:30 am, et
$42 billion deficit
Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates.
30-year Treasury Bond Auction
Thursday, June 10,1:15 pm, et
None
Important. $13 billion of bonds will be auctioned. Strong demand may lead to lower mortgage rates.
Retail Sales
Friday, June 11,8:30 am, et
Up 0.5%
Important. A measure of consumer demand. A smaller than expected increase may lead to lower mortgage rates.
U of Michigan Consumer Sentiment
Friday, June 11,10:00 am, et
74.5
Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.
Business Inventories
Friday, June 11,10:00 am, et
Up 0.4%
Low importance. An indication of stored-up capacity. A significantly larger increase may lead to lower rates.

Market Forecast:
This week brings us the release of only four pieces of data for the markets to digest. The first part of the week will likely be driven by stock market gains or losses. Overall, it likely is going to be a fairly busy week for the financial markets, but the most action will probably come in the latter days. I think that Friday will be the single most important day of the week, but as we have seen over the past couple of weeks, we don’t need significant news from economic reports for the markets to move heavily and mortgage rates to change.

Some Humor:
Two women were sitting next to each other at a bar. After a while one looks at the other and says, “I can't help but think, from listening to you, that you're from Ireland.”
The other woman responds proudly, “Yes, I sure am!”
The first one says, “So am I! And where about in Ireland are ya from?”
The other woman answers, “I'm from St. John's, I am.”
The first one responds, “So, am I!! And what street did you live on?”
The other woman says, “A lovely little area, it was in the west end. I lived on Warbury Street in the old central part of town.”
The first one says, “Faith and it's a small world. So did I! So did I! And what school did ya go to?”
The other woman answers, “Well now, I went to Holy Heart of Mary, of course.”
The first one gets really excited and says, “And so did I. Tell me, what year did you graduate?”
The other woman answers, “Well, now, let's see. I graduated in 1979.”
The first woman exclaims, “The Good Lord must be smiling down upon us! I can hardly believe our good luck at winding up in the same pub tonight. Can you believe it; I graduated from Holy Heart of Mary in 1979 me self.”
About this time, Michael walks into the bar, sits down and orders a beer.Brian, the bartender, walks over to Michael, shaking his head and mutters, “It's going to be a long night tonight.”
Michael asks, “Why do you say that, Brian?”
Brian answers, “The Murphy twins are drunk again.”

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