Market Comment - Week of January 26th, 2009

Mortgage bond prices fell last week pushing rates higher. In an announcement earlier in the month, Fed Chairman Bernanke indicated the timing of a global economic recovery was "highly uncertain." This uncertainty was reinforced last week as the economic turmoil continued across the globe and Spain joined Greece to become the second Euro zone country to have their debt downgraded by Standards and Poor's. A lower debt rating increases the cost to borrow further aggravating the attempts to fund the massive bailouts. For the second week in a row, interest rates on government and conventional loans rose by about 3/4 of a discount point. The Fed meeting on Wednesday will be the most important event this week. Gross domestic product and employment cost index data Friday will also be important.

Economic Factors this week:

Existing Home Sales
Monday, Jan. 26, 2009
Consensus Estimate: Down 0.8%
Analysis: Low importance. An indication of mortgage credit demand. A significant decrease may lead to lower rates.

Fed Meeting Adjourns
Wednesday, Jan. 28, 2009
Consensus Estimate: No change
Analysis: Important. Few expect the Fed to change rates, but volatility may surround the adjournment of this meeting.

Durable Goods Orders
Thursday, Jan. 29, 2009
Consensus Estimate: Down 1.5%
Analysis: Important. An indication of the demand for "big ticket" items. Weakness may lead to lower rates.

New Home Sales
Thursday, Jan. 29, 2009
Consensus Estimate: Up 1.9%
Analysis: Important. An indication of economic strength and credit demand. A decrease may lead to lower rates.

5-year Treasury Note Auction
Thursday, Jan. 29, 2009
Consensus Estimate: None
Analysis: Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.

Q4 Advance GDP
Friday, Jan. 30, 2009
Consensus Estimate: Down 5.0%
Analysis: Important. The aggregate measure of US economic production. Weakness may lead to lower rates.

U of Michigan Consumer Sentiment
Friday, Jan. 30, 2009
Consensus Estimate: None
Analysis: Important. An indication of consumers' willingness to spend. Weakness may lead to lower mortgage rates.

Q4 Employment Cost Index
Friday, Jan. 30, 2009
Consensus Estimate: Up 0.7%
Analysis: Very important. A measure of wage inflation. Weakness may lead to lower rates.

A Fundamental Week
The abundance of fundamental data this week provides a good opportunity for mortgages to improve. If the data shows weakness in the economy then it is possible for mortgage bonds to rally resulting in mortgage interest rate decreases. However, if the data shows that the economy is rebounding or any significant signs of inflation, mortgage bonds may fall pushing mortgage interest rates higher.