Jan

Bond Market Review and Forecast – for Week Ending 01/08/10

A one hundred dollar bill on fire..

There was no strong data indicating a reason to believe in an economic recovery in 2010, and mortgage rates ended a little better last week.

Construction Spending for November fell -0.6% worse than expected, continuing to support the notion that any real growth is still a long ways off.

Factory Orders came in at 1.1% increase, double the expectation, and greater than the October reading of 0.6. The durable goods portion was relatively flat, with just a slight decrease from October.

Minutes from last FOMC meeting showed an uneasy feeling of when the purchasing of Mortgage backed securities should end. The purchasing of mortgage backed securities by the Fed has been largely attributed with keeping mortgage interest rates low. The report did maintain that inflation is still tame, and the recovery will be gradual.

Initial Jobless claims showed an increase of 1,000 to 434,000, which was less than expected.

Decembers Unemployment Rate came in at 10%; however, November was revised to show a gain of 4,000. The pace of people no longer counted in the unemployment rate is growing steadily. The continued weakness in employment is giving people hope that the Fed will not increase interest rates soon.

Today is the only day this week without any economic news scheduled for release. The most important data doesn’t report until Thursday.

The U.S. trade balance reports on Tuesday with an expected deficit of $34.8 billion for November from $32.9 billion in October. Don’t expect this number to cause much fan fare.

The Federal Reserve’s Beige book, details economic conditions throughout the U.S by region, will be posted on Wednesday. The Fed puts a lot of weight on the findings during it’s FOMC meetings. Any unexpected news will have a large impact on the financial market and mortgage rates.

There is a Treasury auction scheduled for Wednesday and Thursday. If the auctions are met with strong demand we could see a slight improvement in mortgage rates. I see investors appetite for long-term US securities waning, which will lead to slightly higher rates.

December retail sales will be released on Thursday the expectation is 0.4%, versus the 1.3% gain in November. Strong retail sales growth is important to an economic recovery, thus better than expected numbers will lead to pressure on Treasuries that would probably carry over to mortgage rates. Initial jobless claims for the week of January 09 will be released on Thursday. The estimate is for a 430,000 new claims.

Consumer Price Index (CPI) from December reports on Friday, estimates are for a 0.2% increase versus 0.4% in November. The Core CPI, eliminating food and energy from CPI, is expected to rise 0.1% from 0% in November.