Inflation fears, the re-pricing of risk, and extensive de-leveraging across the financial landscape drove interest rates up most of the week. Mortgage bonds did recover some lost ground by market close on Friday as a weak employment report and a Fed initiative to inject an additional $60B in liquidity through their Term Auction Facility was announced. Rates finished the week higher by roughly .5% for most mortgage products.
Tremendous disruption in the credit markets and a sinking dollar may drive another volatile week. Rumors of yet another inter-meeting Fed rate cut are swirling around the street as we write this. Early in the week, the economic calendar holds mostly second-tier reports, but the market will have plenty to chew on until Thursdays retail sales and Fridays inflation measuring Consumer Price Index (CPI), both of which will be closely watched. If you are hoping for lower mortgage rates, weak retail sales and a benign CPI would be the best case scenario.
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