Weekly Mortgage Market Update: September 6th 2011

by Alex Stenback on September 6, 2011

Last Week:
Mortgage rates improved modestly last week, with the benchmark 30 year fixed seeing about .125% improvement by week’s end.

The reason?  A drumbeat of very lukewarm economic data, capped off with a truly dismal Employment Report from the Bureau of Labor and Statistics (BLS) which showed our economy netted ZERO new jobs in the month of August.

Behind the curtain, ominous signals fom Europe and emergent concerns about the health of our own banking sector.  Global insolvency (nobody has enough money to pay their obligations, once all the debts are tallied) is a real concern that has moved beyond “crackpot” blogs who were mocked when raising this issue a year ago.

All told, last week was probably enough to dagger any notion of 2010 being “the year of recovery” and mortgage rates sit at very low levels as a result. 

This Week:
With overseas markets in the tank for much of  the long weekend, US markets are doing their best to join the global economic buzzkill.  Stocks are lower (DOW -200ish as I type) and the Ten Year Treasury Yield is setting all time lows under 2% (first time that threshold has been crossed in 60 years, by the way.)

What does that tell us?  Lots of risk aversion happening in the markets, and bonds are benefitting, for sure. 

But don’t be fooled by plunging 10 year Treasury yields – while this instrument is widely viewed as  a proxy for mortgage rates, it is not.  Mortgages are essentially unchanged, and not beneffiting much from the current flight-to-safety trade.

That could of course change , and the overall trend does favor lower rates, but keep in mind that mortgages cannot follow govt debt all the way down – there is an element of risk in mortgages that govt backed bonds to not have.

With a short week, the economic calendar is a spartan affair, with ISM Services Index, The Beige Book, Trade Balance, and Weekly Jobless Claims (in that order) scattered on the calendar.  None of them terrifically important data points and unlikely to influence mortgages much.

Mortgage market movements should march to the the tune of stocks, Eurozone news, and Obama’s jobs speech.  As for the latter, if a clear, credible, targeted effort to create lasting jobs is announced, could get the ‘animal spirits’ soaring in stocks and hurt mortgages.
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