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Market
Comment
Mortgage bond prices finished the week slightly positive which put a little downward pressure on rates. Trading was still within a very narrow range, but the general pattern showed slow steady rate improvements. Tame inflation readings helped but market participants remained cautious of the delayed releases as some of the information was missing. The NAHB Index was 39 vs 38. October Payrolls fell 105K vs the expected 50K decline. November Payrolls rose 64K vs 50K. November Unemployment was 4.6% vs 4.4%. October Retail sales were unchanged vs up 0.1%. Year over year November consumer prices rose up 2.7% vs 3.1% YOY Core November CPI rose 2.6% vs 3%. Mortgage interest rates finished the week better by approximately 1/8 of a discount point.
LOOKING
AHEAD
|
Economic
Indicator |
Release
Date &
Time |
Consensus
Estimate |
Analysis
|
|
Durable Goods Orders
|
Tuesday, Dec. 23,
8:30am, et
|
Up 0.4%
|
Important. An indication of the demand for “big ticket” items. Weakness may lead to lower rates.
|
| Q3 GDP |
Tuesday, Dec. 23,
8:30 am, et
|
Up 3.2%
|
Very important. The aggregate measure of US economic production. Weakness may lead to lower rates.
|
| Industrial Production |
Tuesday, Dec. 23,
9:15 am, et
|
Up 0.1%
|
Important. A measure of manufacturing sector strength. Weakness may lead to lower rates.
|
| Capacity Utilization |
Tuesday, Dec. 23,
9:15 am, et
|
75.9%
|
Important. A figure above 85% is viewed as inflationary. Weakness may lead to lower rates.
|
| Consumer Confidence |
Tuesday, Dec. 23,
10:00 am, et
|
89
|
Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.
|
| Weekly Jobless Claims |
Wednesday, Dec. 24,
8:30 am, et
|
225K
|
Important. An indication of employment. Higher claims may result in lower rates.
|
GSEs
Government sponsored enterprises (GSEs) are financial services created by Congress. Two of the most important GSEs in the mortgage industry are Fannie Mae and Freddie Mac. These corporations are designed to make credit available to targeted borrowers in an efficient manner. Fannie and Freddie were privately owned until September 2008 when the lines were blurred. The credit crisis resulted in Fannie and Freddie facing huge liquidity concerns. Their insolvency under fair value accounting sparked worries about their failure. The Treasury and Congress worked to avert a catastrophe. The Treasury ultimately placed the entities in “conservatorship.” This enabled the Treasury to increase lines of credit to the GSEs and bought equity in the companies. This US Government “ownership” of these companies left many unknowns and clouded the future.
The supply and demand characteristics of Treasury bonds and mortgage-backed securities (MBSs) issued by Fannie and Freddie differ significantly. Treasury securities represent money needed to fund the operations of the US government. MBSs, on the other hand, represent borrowing by homeowners. Because homeowners can sell or refinance their homes, investors in 30-year mortgage-backed securities usually see principal repayment in significantly shorter periods of time. In terms of demand, Treasury securities are regarded as “risk free” investments and often benefit from a “flight to quality” in times of financial crisis. MBSs are part of many retirement accounts which citizens depend on for income. Some want to see the US Government exit their GSE holdings, others urge a public/private combination, while many argue completed privatization. The ramifications of these options remain complex. The debate continues and investors are split 50/50 on privatization between now and 2028.
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