Mortgage Market Update

This is the first in a weekly series that aims at providing a review of the previous week’s happenings and a look ahead at events foreseen. Last week was one to be thankful for and I don’t just mean Turkey Day, but that was reason enough.

Mortgage Backed Securities (mortgage bonds) are what drives pricing of mortgage rates. Todd did a wonderful job explaining that it doesn’t end there as the final pricing, and thus reflection as to what customers pay (and mortgage brokers can earn) is based on down line pricing. That being said, it is still wise for the mortgage professional to watch the mortgage backed securities to provide better guidance to their clients and potentially save clients thousands.

Looking at last week, we saw a tremendously shortened trading week with both Wednesday and Friday closing early in the pits and closed all day on Thursday. As is almost always the case, shortened trading days (and weeks) lead to increased volatility and last week was no exception. We had an up, down, then up week, with mortgage bonds ending up 40 bp (basis points) for the week and mortgage pricing slightly better.

The big event of the week was clearly Tuesday’s FOMC Minutes release and the new format for the Fed’s views ahead. The FOMC Minutes gives an “unplugged” view into what all of the Fed members were thinking at the last meeting.

What is even better is that the negativity on the short-term technical indicators are now looking positive again. Caution needs to be taken though as last week’s trading was skewed due to reduced trading (less trading equals “mood swings” that may not reflective of the overall market).

This week is shaping up to be relatively quiet until Thursday. Bonds will likely take their lead from the stock market with little on the economic report schedule. Here is a quick look ahead:

• Tuesday: Consumer Confidence and Existing Home Sales
• Wednesday: Durable Goods Orders and the Beige Book
• Thursday: Initial Jobless Claims, GDP, GDP Chain Deflator and New Home Sales
• Friday: Personal Spending, Personal Consumption Expenditures Index (PCE), Personal Income and Chicago PMI
  (bold items are major market movers)

The big event this week will likely be Friday’s PCE report as the PCE is the Fed’s favorite gauge for inflation. Mortgage Bonds are still trading decidedly above their 25-day Moving Average and look to continue their overall trend higher (lower mortgage rates).

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