The Fed and The Direction Of Rates

For the week of Nov 16, 2009 — Vol. 7, Issue 46

 

 

Last Week in Review

 

“A STEP IN THE RIGHT DIRECTION…BUT DON’T PUSH YOUR LUCK.”

 

“A STEP IN THE RIGHT DIRECTION…BUT DON’T PUSH YOUR LUCK.” Barbra Streisand obviously wasn’t singing about Bond prices or interest rates in her 1980’s song. But those lyrics were fitting last week when the Federal Reserve stepped in with more buying of Mortgage Backed Securities (MBS), helping Bond prices recover from news of a weak Treasury Auction. Overall, home loan rates bounced around last week and ended the week very slightly improved.

But that said, we can’t “push our luck” and think the Fed will continue to step in and help support home loan rates…we have to remember that the Fed is actually winding down exactly this type of buying support.

As you can see from the chart below, the Federal Reserve’s purchases of MBS peaked at an average of $25 Billion per week back in May – and they are getting closer every day to being done spending their allotment of $1.25 Trillion. Since they announced that their remaining purchases would be rationed out until the end of March 2010 – but that they wouldn’t be making any additional purchases beyond the original commitment – the average purchases per week have been moving lower, down to $14 Billion per week so far in November.

———————–
Chart: Fed’s Purchase of Mortgage Backed Securities (Weekly Averages Per Month)

Why is this important? Because home loan rates are based on MBS – so when the Fed agreed to be a big buyer, it helped provide a market and helped keep MBS prices high and home loan rates low. So as the Fed’s program wraps up and eventually stops, home loan rates are quite likely to be on the rise. So while rates are still very good, they may not be for long. Let’s be sure to talk if you haven’t yet explored how the current rate environment might benefit you or someone you know.

More employment news arrived, and it is interesting to hear the media and other experts proclaim it to be “all good news”. Initial (or First Time) Jobless Claims came in at the lowest reading in 10 months and Continuing Unemployment Claims also fell lower as well – and at first blush, this seems to be very good news. But looking closer, we see that the lower Continuing Claims number was probably the result of unemployment benefits expiring before people could find work – rather than people dropping off of benefits because they found a job. Now that unemployment benefits have been extended by new legislation, we should get a more accurate look at how many people are actually unemployed.

SPEAKING OF EMPLOYMENT… IF YOU OR SOMEONE YOU KNOW IS LOOKING FOR A JOB, TAKE A LOOK AT THE SPECIAL MORTGAGE MARKET GUIDE VIDEO VIEW BELOW ON TIPS FOR A SUCCESSFUL JOB INTERVIEW. IN TODAY’S CHALLENGING JOB MARKET, A LITTLE EXTRA PREPARATION MIGHT JUST BE THE KEY TO LANDING THAT POSITION.

 

Forecast for the Week

 

 

This coming week is loaded with high-impact economic reports. On Monday, we’ll get a glimpse of consumer’s pre-holiday spending patterns when the Retail Sales report is released. You may have seen that many retailers have started the sales and specials early this year, as well as reintroducing the “layaway” option for purchases – all designed to help keep this holiday season from being dismal for retailers.

Inflation news is also on tap this week, as the Producer Price Index is set for release on Tuesday, with the Consumer Price Index following on Wednesday. Also on Wednesday, we’ll get a look at the health of the new construction sector of the housing industry with reports on Housing Starts and Building Permits.

Thursday, we could see some volatility in the markets when the Treasury Department announces next week’s auctions, which will include offerings of 2-year, 5-year, and 7-year Notes. Remember, these auctions will likely continue to cause volatility, as the Federal Reserve has ended their buying program for Treasuries, and as we discussed, has also now started to scale back their purchases of Mortgage Backed Securities (MBS). As the Fed ramps down and ultimately ends their support of the MBS market at the end of March, watch for home loan rates to rise.

Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result. As you can see in the chart below, Bond prices hit a two-month low on October 26th – which had caused home loan rates to worsen – but Bond prices have since been pushed higher by continued Fed buying and some weak economic data.

Chart: Fannie Mae 4.5% Mortgage Bond (Friday Nov 13, 2009)

Japanese Candlestick Chart

 

The Mortgage Market View…

 

 

5 Secrets to a Job Interview

Earlier this month, the Labor Department reported that 190,000 jobs were lost in October and that the Unemployment Rate has risen to 10.2%. It’s always important to be prepared anytime you go on a job interview, but in today’s competitive market it is more important than ever. In this week’s special Video View, check out a video from www.Kiplinger.com called “5 Secrets to a Job Interview.”

 

The Week’s Economic Indicator Calendar

 

 

Remember, as a general rule, weaker than expected economic data is good for rates, while positive data causes rates to rise.

Economic Calendar for the Week of November 16 – November 20

Date

ET

Economic Report

For

Estimate

Actual

Prior

Impact

Mon. November 16

08:30

Retail Sales

Oct

0.9%

1.4%

-2.3%

HIGH

Mon. November 16

08:30

Retail Sales ex-auto

Oct

0.4%

0.2%

0.4%

HIGH

Mon. November 16

08:30

Empire State Index

Nov

30.00

23.51

34.57

Moderate

Tue. November 17

08:30

Core Producer Price Index (PPI)

Oct

0.1%

-0.1%

Moderate

Tue. November 17

08:30

Producer Price Index (PPI)

Oct

0.5%

-0.6%

Moderate

Tue. November 17

09:15

Capacity Utilization

Oct

70.8%

70.5%

Moderate

Tue. November 17

09:15

Industrial Production

Oct

0.4%

0.7%

Moderate

Wed. November 18

08:30

Core Consumer Price Index (CPI)

Oct

0.1%

0.2%

HIGH

Wed. November 18

08:30

Consumer Price Index (CPI)

Oct

0.2%

0.2%

HIGH

Wed. November 18

08:30

Building Permits

Oct

580K

573K

Moderate

Wed. November 18

08:30

Housing Starts

Oct

600K

590K

Moderate

Wed. November 18

10:30

Crude Inventories

11/13

NA

NA

Moderate

Thu. November 19

08:30

Jobless Claims (Initial)

11/14

504K

502K

Moderate

Thu. November 19

10:00

Index of Leading Econ Ind (LEI)

Oct

0.4%

1.0%

Low

Thu. November 19

10:00

Philadelphia Fed Index

Nov

12.0

11.5

HIGH

Categories News and Events | Tags: | Posted on November 25, 2009

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