Mortgage backed securities started the week off well, but their 25-day moving average proved too strong to break, and down they went, again. As I stated last week, there was not much data being released, so technical indicators and news, such as earnings, fueled the moves in the markets. Mortgage rates ticked only slightly higher.
The turn lower began on Wednesday and was further supported on Thursday, with a brief moment of relief on Friday. Data on home sales was basically in line with expectations, though new homes were actually a little worse. Inflationary fears have once again begun to entrench themselves in the markets, and Thursday’s Initial Jobless Claims didn’t help bonds. This time, the inflation news has come from all around the world.
With the dollar hitting new lows, oil and various other commodities hitting new highs, there is little question as to whether inflation is taking place or not. Rest assured that the Fed’s decision on the 30th will play a big role in where each goes in the future, my bet is inflation climbs and the dollar continues its downward spiral on the heels of yet another rate cut, probably .25% this time, though I hope for an increase of the same amount.
This week is starting off rather tame as well, but don’t sit idly by. There will be plenty of action as the week goes on and you can bet mortgage bonds will be moving this week. The main event, actually three, will be the Fed’s decision on Wednesday, the PCE data on Thursday and Friday’s Jobs Jamboree. Remember that mortgage rates generally move opposite of what the Fed does. Also, the PCE is the Fed’s favorite gauge of inflation, so if it shows above the “comfort zone”, it could make the Fed look bad (like they aren’t doing a good enough job at that already), and spark more inflationary fears sending rates even higher.
There are several other reports due out this week besides the two biggies, so here is a rundown…
- Tuesday: Consumer Confidence (10:00)
- Wednesday: ADP Employment Report (8:15), Employment Cost Indicator (8:30), GDP (8:30), Chain Deflator (8:30), Chicago PMI (9:45), Crude Inventories (10:00), FOMC Meeting (2:15)
- Thursday: Personal Consumption Expenditures (PCE) (8:30), Personal Income (8:30), Personal Spending (8:30), Initial Jobless Claims (8:30), ISM Index (10:00)
- Friday: Nonfarm Payrolls (8:30), Unemployment Rate (8:30), Hourly Earnings (8:30), Average Work Week (8:30)
I highlighted the three big ones this time to stress the need to watch the markets when these hit the airwaves. Looking at the technical side of things, bonds will have a tough week ahead. There are plenty of catalysts to break barriers, but those barriers may be on the support side.
Bonds are already starting the week off below their 50-day moving average and not too far above their 200-day moving average. If the data pushes bonds lower, that all important 200-day level may break this week. The general trend right now favors lower movement, though stochastics are towards the oversold side (not there yet).
My advise to my clients i to lock for the weak hearted. As for risk takers, a very cautious floating stance may work, but have that “itchy trigger finger” on the lock button.
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3 responses so far ↓
1 Richard // Apr 29, 2008 at 9:31 pm
Great post,
Mortgage Interest rates are probably the most important part about buying a house. After all, your aim is to borrow the money you need for the least possible cost, so you need to assess which type of interest rate is best for your particular circumstances.
As we move into the last month of 2007, mortgage rates are continuing to decrease. They are now at the lowest point in more than two years, thus opening a bit wider the door of opportunity for home buyers. The average rate for a 30-year fixed-rate mortgage is now down to 6.10 percent, with 0.5 points (fees). Last year at this time the rate was 6.14 percent. This is a popular option for many homeowners who are now refinancing their mortgage.
2 Ling // May 1, 2008 at 4:22 am
Well, the Fed did cut rates by .25%, but the dollar went up and oil went down. That’s probably because the Fed indicated there won’t be any more rate cuts in the near future.
3 Robert D. Ashby // May 1, 2008 at 2:56 pm
Richard - I disagree that rates are the most important thing. The most important thing is getting into the right loan program for your situation.
Also, is this a canned response? You talk about the end of 2007 and we are in May of 2008, what gives? Quoting rates without an APR? I suggest you think harder about what you are writing.
Ling - Yes, oil dropped and the dolar rose because the Fed said they would stop as inflation is a bigger concern. Did you see how they got their face slapped today?
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