Mortgage bond prices finished the week sharply lower which put upward pressure on rates. There was little data the beginning of the week and negative trading emerged from reports that some US/China trade tariffs would be temporarily delayed. The European Central Bank also cut rates which resulted in MBS volatility. Core inflation readings on both the consumer and producer sides caused concern. Core PPI rose 0.3% versus an expected 0.1% increase and core CPI rose 0.3% versus an expected 0.2% increase. Weekly jobless claims were 204K. Analysts looked for a reading of 215K. Retail sales rose 0.4% versus the expected 0.2% increase. Consumer sentiment was a stronger than expected 92.0. Mortgage interest rates finished the week worse by almost a full discount point.


Economic IndicatorRelease Date & TimeConsensus EstimateAnalysis
Industrial ProductionTuesday, Sept. 17,
9:15 am, et
Down 0.3%Important. A measure of manufacturing sector strength. Weakness may lead to lower rates.
Capacity UtilizationTuesday, Sept. 17,
9:15 am, et
77.8%Important. A figure above 85% is viewed as inflationary. Weaker figure may lead to lower rates.
NAHB Housing IndexTuesday, Sept. 17,
10:00 am, et
67Moderately Important. A measure of single family housing. Weakness may lead to lower mortgage rates.
Housing StartsWednesday, Sept. 18,
8:30 am, et
1195KImportant. A measure of housing sector strength. Weakness may lead to lower rates.
Fed Meeting AdjournsWednesday, Sept. 18,
2:15 pm, et
25 basis point cutImportant. Most expect the Fed to change rates. Volatility may surround the adjournment of this meeting.
Weekly Jobless ClaimsThursday, Sept. 19,
8:30 am, et
214KImportant. An indication of employment. Higher claims may result in lower rates.
Philadelphia Fed SurveyThursday, Sept. 19,
10:00 am, et
16Moderately important. A survey of business conditions in the Northeast. Weakness may lead to lower rates.
Leading Economic IndicatorsThursday, Sept. 19,
10:00 am, et
Up 0.3%Important. An indication of future economic activity. A smaller increase may lead to lower rates.

Volatility Returns

Volatility in mortgage-backed securities, the debt instruments that dictate mortgage interest rates, rose considerably last week after a considerable time of continuously falling rates. We saw moves of at least 1/4 of a discount point ($500 on a $200K loan) every day of trading last week. Unfortunately, most of those moves were negative which cumulatively left rates sharply higher for the week.

Many lobby the Fed to follow their counterparts across the globe and reduce rates considerably more than they already have. The challenge the Fed faces is that a lot of the data continues to show strength and now there are higher than expected inflation readings to deal with. The latest CPI figure was the highest in 11 years. The last thing the Fed wants to do is cut rates and spur additional inflationary pressures. While the Fed is expected to cut rates this week a more aggressive future of continual rate cuts is less certain. The fact remains that the Fed will be data dependent as they continually state. Economic releases could shake things up as we saw last week. Floating in this environment is very risky.