Another volatile, nutty week in the mortgage markets. Credit and liquidity fears sparked some ugly action in stocks and bonds, only to be "rescued" not once, but twice by the Fed. By weeks end, a combination of a tame Consumer Price Index and flight to quality flows out of stocks and into mortgage (and other) bonds served up a .125-.25% improvement for most mortgage rates.
Could be another volatile week: On sunday The Fed cut the discount rate by .25%, and announced yet another lending facility to support the capital markets. This is the first time in 30 years the Fed has taken such steps, which were "designed to bolster market liquidity and promote orderly market functioning." This may portend a cut to the Federal Funds Rate as large as 1% when the FOMC gathers on Tuesday. Accordingly, the statement released by the Fed at the conclusion of it’s Tuesday meeting will get more attention than usual (if such a thing is possible.)
Also, Goldman Sachs and Lehman brothers report results on Tuesday, and the market is on high-alert for another "Bear Stearns" event, escpecially in the case of Lehman, which has huge exposure to mortgage-related instruments.
Recall, the last several times the Fed has cut rates, mortgage rates have risen – the markets still fear inflation – but against this backdrop of financial disruption, it is anyone’s guess how this week will play out for mortgage rates.