Monday Market Commentary: Rates Jumped Last Week

by Alex Stenback on October 13, 2008

Last Week:
Mortgage rates took a beating last week as the unfolding crisis in world financial markets took it’s pound of flesh from mortgage (and nearly all other) bonds.

This may confound some readers.  Normally, when stocks do poorly, mortgage rates improve.  It should be obvious to most that we are navigating through a stretch of "non-normal" behavior in the financial markets.  So it is no small wonder that the relationship between stocks and mortgage bonds breaks down  (it does so periodically anyway even when we aren’t faced with the biggest financial crisis ever) during extreme events.

For now lets blame it on investors having to sell high quality mortgage related assets to raise cash (to meet margin calls and the demands of other forms of financial distress) and the fact that the bond markets are awash in supply – too much supply means lower prices.  Lower bond prices mean higher rates.

And there you have it – a 1/2 point increase to mortgage rates in a couple of days.

This Week:
The one thing we know for certain, is that rates won’t change on Monday.  That’s because the bond market is closed.

Beyond that, we have the impending accouncement of the latest iteration of the Governments master plan for salvation.  What exactly this looks like, and how the market receives it, will be the primary driver of the markets this week.

The importance of the rest of the economic calendar pales in comparison, but we do have the Producer and Consumer Price Indices on Wed and Thurs which will give the latest data on inflation, and the Philly Fed index (a measure of manufacturing activity, the second most important regional report, behind the Chicago PMI.)

The only thing we really know is that things are likely to be volatile – we just don’t know whether rates will move up or down.
This Week’s Economic Calendar [Barron's]
Watching Mortgage Rates? Keep up to speed on the latest gyrations in mortgage rates and the events that drive them by IM, the Web or your phone.  Subscribe to our Ratewatch feed (via Twitter) right here.

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