MIG Market Watch, November 9th, 2020
MARKET COMMENT Mortgage bond prices finished the week higher which put downward pressure on rates. We started the week on a positive note as rates improved Monday morning. The data was mixed. Construction spending rose 0.3% vs 0.9%. ISM index was 59.3 vs 55.7. We reversed course Tuesday morning with slightly higher rates but then turned positive again Wednesday and into Thursday. Weekly jobless claims were 751K vs the expected 732K. Productivity was 4.9% vs 5.6%. Stronger than expected employment data Friday morning erased some of the mid-week improvements. Unemployment was 6.9% vs the expected 7.7%. Non-farm payrolls rose 638K vs the expected 530K. Mortgage interest rates finished the week better by approximately 1/4 to 3/8 of a discount point despite the volatility.
LOOKING AHEAD
| Economic Indicator | Release Date & Time | Consensus Estimate | Analysis |
| 10-year Treasury Note Auction | Monday, Nov. 9, 1:15 pm, et | None | Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates. |
| Veterans Day | Wednesday, Nov. 11 | Important. No trading. A shortened trading week may lead to volatility when trading resumes Thursday. | |
| Consumer Price Index | Thursday, Nov. 12, 8:30 am, et | Up 0.2%, Core up 0.2% | Important. A measure of inflation at the consumer level. Weaker figures may lead to lower rates. |
| Weekly Jobless Claims | Thursday, Nov. 12, 8:30 am, et | 750K | Important. An indication of employment. Higher claims may result in lower rates. |
| 30-year Treasury Bond Auction | Thursday, Nov. 12, 1:15 pm, et | None | Important. Bonds will be auctioned. Strong demand may lead to lower mortgage rates. |
| Producer Price Index | Friday, Nov. 13, 8:30 am, et | Up 0.2%, Core up 0.3% | Important. An indication of inflationary pressures at the producer level. Weaker figures may lead to lower rates. |
| U of Michigan Consumer Sentiment | Friday, Nov. 13, 10:00 am, et | 82 | Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates. |
Trading This Week Market conditions that often lead to mortgage interest rate volatility are thin trading and shortened trading weeks. If very few market participants are buying and selling bonds, the potential for short-term volatility is escalated. A large buyer or seller can execute trading orders that, without additional traders to buffer out the extreme buying or selling, can lead to swift market movements. In addition, shortened trading weeks have the potential to compress a week’s worth of trading into fewer days. Bond traders often take defensive positions ahead of weekends and holidays to guard against unforeseen events that could possibly jeopardize their investments. This positioning can be beneficial or detrimental to mortgage interest rates. If investors sell stocks and buy mortgage-backed securities, mortgage interest rates will improve. However, if investors sell mortgage-backed securities and hold cash positions, mortgage interest rates will rise. Holidays can often result in volatility as trading resumes following the extended close. This week could result in market swings that are favorable or negative in nature. Considering the heightened possibility for mortgage interest rate volatility, a cautious approach to interest rate exposure is prudent.
