Market Comment - Week of December 22nd, 2008

Mortgage bond prices rose last week, which helped mortgage interest rates improve, but only slightly. We saw a huge rally following the Fed rate cut Tuesday. Unfortunately the gains were short-lived and most were erased the following day. Trading remained volatile throughout the remainder of the week. The White House stepped in to help the troubled auto industry Friday, which sent stocks higher that morning at the expense of mortgage and Treasury bonds. For the week, interest rates on government and conventional loans fell by about 1/8 to 1/4 of a discount point. The Treasury auctions will set the tone for trading this week. Foreign demand for dollar denominated assets will be the focus. The bond market will close early Wednesday ahead of the Christmas holiday Thursday. Trading will resume Friday. This shortened trading week may lead to mortgage interest rate volatility.

Economic Factors this week:

2-year Treasury Note Auction
Monday, Dec. 22, 2008
Consensus Estimate: None
Analysis: Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.

Q3 GDP final revision
Tuesday, Dec. 23, 2008
Consensus Estimate: Down 0.5%
Analysis: Important. The aggregate measure of US economic production. A larger decrease may lead to lower rates.

Existing Home Sales
Tuesday, Dec. 23, 2008
Consensus Estimate: Down 1.0%
Analysis: Low importance. An indication of mortgage credit demand. A significant decrease may lead to lower rates.

U of Michigan Consumer Sentiment
Tuesday, Dec. 23, 2008
Consensus Estimate: None
Analysis: Important. An indication of consumers' willingness to spend. Weakness may lead to lower mortgage rates.

New Home Sales
Tuesday, Dec. 23, 2008
Consensus Estimate: Down 3.0%
Analysis: Important. An indication of economic strength and credit demand. A decrease may lead to lower rates.

5-year Treasury Note Auction
Tuesday, Dec. 23, 2008
Consensus Estimate: None
Analysis: Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.

Durable Goods Orders
Wednesday, Dec. 24, 2008
Consensus Estimate: Down 3.1%
Analysis: Important. An indication of the demand for "big ticket" items. Weakness may lead to lower rates.

Personal Income and Outlays
Wednesday, Dec. 24, 2008
Consensus Estimate: Income unchanged, Outlays down 0.8%
Analysis: Important. A measure of consumers' ability to spend. Weakness may lead to lower mortgage rates.

Revised GDP

The Gross Domestic Product (GDP) is one the most important reports during any given quarter. GDP is a measure of US economic output and spending. The report is significant in that it provides investors, analysts, traders, and economists with a comprehensive report of the direction of the economy. In addition, it also influences the decisions of Federal Reserve policy makers, Congressional budget employees, and corporate financial planners. GDP is the sum total of goods and services produced by the United States. The four major components of the GDP release are consumption, investment, government purchases, and net exports. The initial report is often based on incomplete data. Therefore, additional revisions are released over the following two months. There are often substantial differences between the initial release and the revisions. The mortgage-backed security market generally responds favorably to weaker GDP growth. The revised third quarter gross domestic product data this week has the potential to move mortgage bond prices, especially amid the thin trading that is likely