Weekly Comment – The Fed and Slightly Lower Rates

BurnoutMarket Comment – September 21, 2015

Mortgage bond prices finished the week higher which pushed rates lower. Rates were worse the beginning of the week ahead of the Fed results Thursday. Retail sales rose 0.2% versus the expected 0.3% increase. Industrial production fell 0.4% versus the expected 0.2% decrease. Capacity use was 77.6 versus the expected 77.8. These figures were rate friendly but we got no traction from them as selling pressure continued tied to stock gains. The NAHB Housing Market Index was @ 62 versus the expected 61. Rates improved Thursday afternoon in response to the Fed (see article below.) Mortgage interest rates finished the week better by about 3/8 of a discount point.

LOOKING AHEAD

Economic
Indicator
Release
Date & Time
Consensus
Estimate

Analysis
Existing Home Sales Monday, Sept. 21,
10:00 am, et
5.61M Low importance. An indication of mortgage credit demand. Significant weakness may lead to lower rates.
FHFA House Price Index Tuesday, Sept. 22,
10:00 am, et
Up 0.6% Moderately Important. A measure of single family house prices. Weakness may lead to lower rates.
2-year Treasury Note Auction Tuesday, Sept. 22,
1:15 pm, et
None Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.
5-year Treasury Note Auction Wednesday, Sept. 23,
1:15 pm, et
None Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.
Weekly Jobless Claims Thursday, Sept. 24,
8:30 am, et
265K Important. An indication of employment. Higher claims may result in lower rates.
Durable Goods Orders Thursday, Sept. 24,
8:30 am, et
Up 1.8% Important. An indication of the demand for “big ticket” items. Weakness may lead to lower rates.
New Home Sales Thursday, Sept. 24,
10:00 am, et
515K Important. An indication of economic strength and credit demand. Weakness may lead to lower rates.
7-year Treasury Note Auction Thursday, Sept. 24,
1:15 pm, et
None Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.
Q2 GDP Estimate Friday, Sept. 25,
8:30 am, et
Up 2.6% Important. The aggregate measure of US economic production. Weakness may lead to lower rates.
U of Michigan Consumer Sentiment Friday, Sept. 25,
10:00 am, et
85.9 Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.

Fed Reinvests in Mortgage Bonds

The Fed stated, “The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. This policy, by keeping the Committee’s holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.” This is great news for lower rates in the short term. However, the Fed also noted that most members look for a rate hike by the end of the year. Now is a great time to take advantage of mortgage interest rates at these favorable levels.

 

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