Market Comment - Week of November 24th, 2008
Mortgage bond prices rose last week pushing mortgage interest rates lower. Trading remained choppy with small improvements the first portion of the week. The majority of the releases showed continued economic weakness. Oil fell below $50 a barrel Thursday, jobless claims escalated, stocks generally fell, and deflation talk increased. St Louis Federal Reserve President Bullard indicated deflation was only a very remote risk with core inflation currently over two percent. For the week, interest rates on government and conventional loans fell by about 1/8 of a discount point. The consumer confidence release this week may receive more attention as we head into the holiday shopping season. The bond market closes early Wednesday, is closed Thursday, and closes early Friday in honor of Thanksgiving.
Mortgage bond prices rose last week pushing mortgage interest rates lower. Trading remained choppy with small improvements the first portion of the week. The majority of the releases showed continued economic weakness. Oil fell below $50 a barrel Thursday, jobless claims escalated, stocks generally fell, and deflation talk increased. St Louis Federal Reserve President Bullard indicated deflation was only a very remote risk with core inflation currently over two percent. For the week, interest rates on government and conventional loans fell by about 1/8 of a discount point. The consumer confidence release this week may receive more attention as we head into the holiday shopping season. The bond market closes early Wednesday, is closed Thursday, and closes early Friday in honor of Thanksgiving.
Economic Factors this week:
Existing Home Sales
Monday, Nov. 24, 2008
Consensus Estimate: Down 2.5%
Ananlysis: Low importance. An indication of mortgage credit demand. A significant decrease may lead to lower rates.
2-year Treasury Note Auction
Monday, Nov. 24, 2008
Consensus Estimate: None
Analysis: Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.
Monday, Nov. 24, 2008
Consensus Estimate: None
Analysis: Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.
Q3 Preliminary GDP
Tuesday, Nov. 25, 2008
Consensus Estimate: Down 0.6%
Analysis: Very important. The aggregate measure of US economic production. Weakness may lead to lower rates.
Tuesday, Nov. 25, 2008
Consensus Estimate: Down 0.6%
Analysis: Very important. The aggregate measure of US economic production. Weakness may lead to lower rates.
Consumer Confidence
Tuesday, Nov. 25, 2008
Consensus Estimate: 39.5
Analysis: Important. An indication of consumers' willingness to spend. Weakness may lead to lower mortgage rates.
5-year Treasury Note Auction
Tuesday, Nov. 25, 2008
Consensus Estimate: None
Analysis: Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.
Tuesday, Nov. 25, 2008
Consensus Estimate: None
Analysis: Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.
Personal Income and Outlays
Wednesday, Nov. 26, 2008
Consensus Estimate: Income up 0.1%, Outlays down 0.7%
Analysis: Important. A measure of consumers' ability to spend. Weakness may lead to lower mortgage rates.
Wednesday, Nov. 26, 2008
Consensus Estimate: Income up 0.1%, Outlays down 0.7%
Analysis: Important. A measure of consumers' ability to spend. Weakness may lead to lower mortgage rates.
U of Michigan Consumer Sentiment
Wednesday, Nov. 26, 2008
Consensus Estimate: 58.0
Analysis: Important. An indication of consumers' willingness to spend. Weakness may lead to lower mortgage rates.
Wednesday, Nov. 26, 2008
Consensus Estimate: 58.0
Analysis: Important. An indication of consumers' willingness to spend. Weakness may lead to lower mortgage rates.
New Home Sales
Wednesday, Nov. 26, 2008
Consensus Estimate: Down 3.0%
Analysis: Important. An indication of economic strength and credit demand. Weakness may lead to lower rates.
Wednesday, Nov. 26, 2008
Consensus Estimate: Down 3.0%
Analysis: Important. An indication of economic strength and credit demand. Weakness may lead to lower rates.
Deflation
Deflation is generally defined as a contraction in the volume of available money or credit that results in general price declines. In inflationary periods, fixed payments buy less each year. In deflationary periods, fixed payments are worth more every year. The purchasing power of $100 in one year increases the following year in a deflationary environment. When investors think deflation is coming, they typically buy Treasuries, which we have seen recently. Other bonds such as corporate or mortgage bonds however do not usually have the same demand. Deflation makes debt payments more difficult each year. Treasuries are backed by the US government, which can print more money when needed. Companies and homeowners don't have that luxury. In severe deflationary times bankruptcies generally increase. This casts doubt over the performance of corporate and mortgage bonds. This is one reason Treasury rates have fallen significantly while mortgage rates have not been as fortunate.
Deflation is generally defined as a contraction in the volume of available money or credit that results in general price declines. In inflationary periods, fixed payments buy less each year. In deflationary periods, fixed payments are worth more every year. The purchasing power of $100 in one year increases the following year in a deflationary environment. When investors think deflation is coming, they typically buy Treasuries, which we have seen recently. Other bonds such as corporate or mortgage bonds however do not usually have the same demand. Deflation makes debt payments more difficult each year. Treasuries are backed by the US government, which can print more money when needed. Companies and homeowners don't have that luxury. In severe deflationary times bankruptcies generally increase. This casts doubt over the performance of corporate and mortgage bonds. This is one reason Treasury rates have fallen significantly while mortgage rates have not been as fortunate.
No comments:
Post a Comment