Market Comment - Week of November 10th, 2008
Mortgage bond prices rose last week pushing mortgage interest rates lower. Trading the beginning of the week focused on the election and we saw equities rally in anticipation of the result. The latter portion of the week resumed focus on economic turmoil tied to rising unemployment, tight credit markets, continued housing market concerns, and global economic uncertainty. Trading was choppy with almost a full discount point up and down swing on Thursday alone. For the week, interest rates on government and conventional loans fell by about 3/4 of a discount point.The retail sales data Friday will be the most important event this week. The additional debt supply that continues to hit the market along with the shortened trading week may also lead to mortgage interest rate volatility.

Economic Factors this Week:

3-year Treasury Note Auction
11.10.08

Consensus Estimate: None
Analysis: Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.

Veterans Day
11.11.08
Consensus Estimate: None
Analysis: Important. Shortened trading week may lead to thin trading conditions and market volatility.

10-year Treasury Note Auction
11.12.08
Consensus Estimate: None
Analysis: Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.

Trade Data
11.13.08
Consensus Estimate: $56.8 billion deficit
Analysis: Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates.

30-year Treasury Bond Auction
11.13.08
Consensus Estimate: None
Analysis: Important. Bonds will be auctioned. Strong demand may lead to lower mortgage rates.

Retail Sales
11.14.08
Consensus Estimate: Down 1.2%
Analysis: Important. A measure of consumer demand. Weakness may lead to lower mortgage rates.

Business Inventories
11.14.08
Consensus Estimate: Up 0.2%
Analysis: Low importance. An indication of stored-up capacity. A significantly larger increase may lead to lower rates.

U of Michigan Consumer Sentiment
11.14.08
Consensus Estimate: 57.0
Analysis: Important. An indication of consumers' willingness to spend. Weakness may lead to lower mortgage rates.

Auctions
US Treasury bonds do not directly dictate fixed mortgage interest rate pricing however they do have an indirect impact. Both Treasuries and mortgage bonds often track in the same direction but this is not always the case. There are many times that Treasuries and mortgage bonds move inversely. Despite the overwhelming size of the US economy, foreign investors can still have an effect on moving the financial markets. When foreign economies struggle foreign investors often purchase US based investments including mortgage bonds. This demand usually causes mortgage bond prices to rise and interest rates to fall. This flight to quality buying was one of the factors that helped mortgage interest rates to remain historically low in years past. There is a real threat that continued global economic turmoil may keep foreign investors from purchasing mortgage bonds in the future. The Treasury auctions this week will be important in determining the current appetite of foreign investors for dollar denominated securities. If this week's auctions are poorly bid mortgage bond prices could fall pressuring mortgage interest rates higher.