Monday Market Commentary: Rates Holding Their Ground

by Alex Stenback on August 3, 2009

Last Week:
The mortgage market managed to hold it’s ground, and even eek out some modest improvement in rates, despite the latest onslaught of supply from the Federal Government.  30 year fixed rates remain rangebound, trading between 4.875% and 5.375% for most borrowers, depending on a variety of factors.

Supply (too much of it) has been a big issue for the past six weeks or so.  To put the supply issue in proper context, just last week, Uncle Sam issued (borrowed) something in the neighborhood of $236 BILLION dollars in bonds notes and bills.  That is as they say a horse-choking sum.

All of that supply can “crowd out” mortgage bonds, as would be investors buy up treasury issued debt instead.  Mortgage rates then must rise to attract enough investor dollars, and so it goes.  More often than not the result of too much supply is higher mortgage rates.

This Week:
With last week’s treasury auctions out of the way, look for the market to refocus on the general economy while remembering the old mortgage banking saw: “What’s bad for the economy is often good for rates.”

Accordingly, the bond and mortgage markets should remain tightly coupled with stocks – rising stocks may cause rates to rise, falling stocks may help rates.  

As for the economic calendar, the markets have some data to digest this week – beware any “better than expected” surpises in these reports - they may push rates higher:

  • Monday: ISM index (a measure of manufacturing sector health) is expected to show a 46.5 (under 50 is considered “contracting”)
  • Tuesday: Personal Income and Outlays: One of the internal components of this report, the Personal Consumption Expenditures (or PCE) is a key measure of inflation.  Inflation is bad for mortgage rates, so watch for any spikes.
  • Wednesday: ADP Employment Report: From Payroll services company of the same name – will give an early estimate of July job losses.
  • Friday: Employment Report from the bureau of labor and statistics will give the jobs numbers from July, and publish revisions to earlier reports. 

This weeks full economic calendar can be found via Barrons, which is a great place to track the results of the reports themselves, by the way.

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