rket commentary

This Week’s Market Commentary

This week is very light in terms of scheduled economic reports that are relevant to mortgage pricing.
There are also two Treasury auctions taking place that may influence mortgage rates, but we may see the stock markets drive bond trading and changes to mortgage pricing a good portion of the week.

There is no relevant data scheduled for release today or Tuesday. Fed Chairman Bernanke will speak at the International Monetary Conference in Atlanta this afternoon, but I don’t believe we should consider this a highly important event.

There could be reference to the some of the current financial crises overseas. However, unless something said by Chairman Bernanke is highly surprising, I suspect that his speech will have a minimal or no impact on today’s afternoon rates.

The first economic report of the week comes Wednesday afternoon when the Federal Reserve will release its Beige Book. This data details economic conditions throughout the U.S. by region. It is relied upon heavily by the Federal Reserve to determine monetary policy during their FOMC meetings.

If it shows surprisingly softer economic activity, the bond market may thrive and mortgage rates could drop shortly after the 2:00 PM ET release. If it reveals signs of inflation growing or rapidly expanding economic activity in many regions, we could see mortgage rates revise higher Wednesday afternoon.
April’s Goods and Services Trade Balance report will be posted early Thursday morning. This data gives us the size of the U.S. trade deficit and will be released at 8:30 AM ET. It isn’t likely to cause much movement in the markets or mortgage rates, but nevertheless forecasters are expecting to see a $48.7 billion trade deficit. It will take a wide variance from this projection for the data to influence mortgage rates.

The two relevant Treasury auctions scheduled will be held the middle part of the week. The 10-year Treasury Note sale is scheduled for Wednesday while the 30-year Bond sale will take place Thursday. Results of both auctions will be posted at 1:00 PM ET on the sale days. If investor demand was high, we may see bonds rally during afternoon trading, however, weak demand could lead to selling and an increase to mortgage rates. It is common to see some pressure in bonds right before these sales as investors prepare for them, but as long as the sales are not weak those pre-auction losses are usually recovered once they are completed.

Overall, it likely is going to be a moderately busy week for the mortgage market. The most action will likely come during the middle days, assuming that the stock markets don’t go into heavy selling or buying. In weeks like these where there is little factual economic data being posted to drive bond trading, the stock markets often take center stage.

Sizable stock gains should lead to bond weakness and higher mortgage rates, while stock weakness will likely allow improvements to mortgage pricing. I am considering Wednesday the best candidate for most active day in rates, but that is relying on the assumption the stock markets remain relatively calm this week.