A steady march of weak-to-horrible economic data (which normally helps mortgage rates improve) failed to inspire any sort of meaningful rally in the mortgage bond markets, and rates drifted slightly higher by the time markets closed last Friday.
Here is a partial litany: 598,000 jobs lost in January (worst since 1974.) Personal incomes and expenditures are trending downward and seem to be getting worse. Auto makers report worse than expected drops in sales, and are still circling the drain.
There is, as John Jansen puts it, an onslaught of supply hitting the bond markets this week. This supply of new debt is primarily being issued by the Treasury as it scrambles to finance the exploding obligations of the Federal Government.
This oversupply can create problems for the mortgage bond market. Mortgage rates can be pushed higher, under the theory that demand for mortgage-related securities will drop as the flood of new issuance by the treasury “crowds-out” investment/money that might normally flow to mortgage bonds. It is probably useful here to point out the inverse relationship between bond prices, and yield (or rate, as it is commonly understood): Less demand for mortgage bonds means lower prices and higher interest rates.
The economic calendar offers little this week – with Thursday’s retail sales report the only data point that qualifies as potentially market moving.
The energy and focus of the markets this week will be the stimulus package and the Treasury Department’s latest plan to save the banking sector. Both of those efforts, once the details are set, will cause some unexpected gyrations in the financial markets, so this is a week where you probably should not be inclined to float an interest rate if you entered into a contract over the weekend.
· This Weeks Economic Calendar [Barrons]
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