Market Comment
Mortgage bond prices finished the week sharply lower which put upward pressure on rates. We saw negative movements most of the week which essentially erased all the gains from the prior week. The Treasury Secretary said US rates are “unlikely” to return to pre-covid levels despite her expectation for inflation to decrease this year. The data showed signs that the inflation fight is far from over. Consumer prices rose 0.4% as expected. The core rose 0.4% vs 0.3%. Producer prices rose 0.6% vs 0.3%. The Core rose 0.3% vs 0.2%. Retail sales were up 0.6% vs 0.8%. Weekly jobless claims were 209K vs 218K. Mortgage interest rates finished the week worse by approximately 7/8 of a discount point.
Looking Ahead
| Economic Indicator | Release Date & Time | Consensus Estimate | Analysis |
| NAHB Housing Index | Monday, March 18, 10:00 am, et | 48 | Moderately Important. A measure of single-family housing. Weakness may lead to lower mortgage rates. |
| Housing Starts | Tuesday, March 19, 8:30 am, et | 1.447M | Important. A measure of housing sector strength. Weakness may lead to lower rates. |
| 20-year Treasury Bond Auction | Tuesday, March 19, 1:15 pm, et | None | Bonds will be auctioned. Strong demand may lead to lower mortgage rates. |
| Fed Meeting Adjourns | Wednesday, March 20, 2:15 pm, et | No rate changes | Important. Few expect the Fed to change rates, but some volatility may surround the adjournment of this meeting. |
| Weekly Jobless Claims | Thursday, March 21, 8:30 am, et | 210K | Important. An indication of employment. Higher claims may result in lower rates. |
| Philadelphia Fed Survey | Thursday, March 21, 10:00 am, et | 7.2 | Moderately important. A survey of business conditions in the Northeast. Weakness may lead to lower rates. |
| Existing Home Sales | Thursday, March 21, 10:00 am, et | 3.94M | Low importance. An indication of mortgage credit demand. Significant weakness may lead to lower rates. |
| Leading Economic Indicators | Thursday, March 21, 10:00 am, et | Down 0.3% | Important. An indication of future economic activity. Weakness may lead to lower rates. |
| 10-year Treasury TIPS Auction | Thursday, March 21, 1:15 pm, et | None | Important. TIPS will be auctioned. Strong demand may lead to lower mortgage rates. |
Inflation
We had another month of higher than expected inflation data. Rates shot higher in February in response to higher consumer and producer inflation readings and we saw a repeat of that last week. Inflation erodes the value of fixed income investments such as mortgage-backed securities. This causes MBS prices to fall and rates to rise.
The Fed has a dual mandate of keeping prices stable while maximizing employment. Inflationary pressures make that job very difficult. They have been clear for some time that their battle with inflation will take priority until it is in check. That means there will be no pivot on rate policy until inflation pressures ease. A cautious approach to float/lock decisions is prudent in this environment until the Fed is closer to pivoting.
