Monday Market Commentary: Rates Tick Higher

by Alex Stenback on March 2, 2009

GDP eye candy via Econompic

Last Week:
Mortgage rates posted modest increases across most if not all product classes last week as the bond market failed to hold it’s ground despite an onslaught of of negative and normally interest rate friendly news. To recap: 4th Quarter GDP was worst since 1982.  Jan Existing home sales posted terrible numbers. Jan New home sales were basically the worst ever. Treasury bit off another expensive chunk of Citigroup to help improve their capital, and the DOW barely stayed above 7K.

So why did mortgage rates not fall?  As we mentioned in this space last week, the negative economic data’s impact on bonds and home mortgage rates was effectively nullified by an onslaught of supply (and expected supply) driven by stimulus packages, a cascading series of bailouts and re-bailouts (see, AIG, who over the weekend lined up serving number 4 of Federal gruel) and an ambitious expansion of government spending in other areas.

In other words, Uncle Sam will need to raise previously unthinkable sums of money to pay for all of this, so they’ll need to offer investors in US debts a spoonful of sugar in the form of higher rates of return to choke it down.

This Week
A fully economic calendar awaits this week.  As I write this, the DJIA starts with a 6 for the first time in 12 years. Earlier today, Personal Incomes and Expenditures posted a not horrible but still flat-to-down set of numbers, and the ISM Manufacturing Index posted a slightly better than expected but still recessionary figure of 35.8 (below/above 50 is contracting/expanding.)

Later in the week, the Biege book, ADP employment report, and full employment report for February are due. Non-farm payrolls are expected to have declined by 600K+ jobs.  Sprinked throughout the week are several scheduled speeches by Fed officials – these can often move markets.

And, of course, with AIG getting yet another bailout, and the details of the refinancing provisions of the HASP set to be released, there is always the potential for more fireworks on the fly.
This Week’s Economic Calendar [Barron's]

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