MARKET COMMENT
Mortgage bond prices finished the week sharply lower which put significant upward pressure on rates. We started the week on a positive note Monday morning but that quickly reversed later that day and rates increased every day for the remainder of the week. The coronavirus pandemic dominated headlines and resulted in some of the most volatile trading in over a decade. The DOW lost over 2000 points Monday morning, hit trading halt triggers multiple times during the week, and saw significant losses. The Fed announced $1.5T in spending to help market liquidity issues as a result of the global financial turmoil. Oil prices crashed. The data was generally tame but was overshadowed by fear and uncertainty. Core producer inflation fell 0.3% vs the expected 0.1% decline. Mortgage interest rates finished the week worse by almost 2 full discounts points.
LOOKING AHEAD
| Economic Indicator | Release Date & Time | Consensus Estimate | Analysis |
| Retail Sales | Tuesday, March 17, 8:30 am, et | Up 0.4% | Important. A measure of consumer demand. A smaller than expected increase may lead to lower mortgage rates. |
| Industrial Production | Tuesday, March 17, 9:15 am, et | Up 0.4% | Important. A measure of manufacturing sector strength. A lower than expected increase may lead to lower rates. |
| Capacity Utilization | Tuesday, March 17, 9:15 am, et | 77% | Important. A figure above 85% is viewed as inflationary. Weaker figure may lead to lower rates. |
| NAHB Housing Index | Tuesday, March 17, 10:00 am, et | 74 | Moderately Important. A measure of single-family housing. Weakness may lead to lower mortgage rates. |
| Housing Starts | Wednesday, March 18, 8:30 am, et | 1.5M | Important. A measure of housing sector strength. Weakness may lead to lower rates. |
| Fed Meeting Adjourns | Wednesday, March 18, 2:15 pm, et | Rate cut expected | Important. Most expect the Fed to change rates but are split on the size. Volatility may surround the meeting. |
| Weekly Jobless Claims | Thursday, March 19, 8:30 am, et | 205K | Important. An indication of employment. Higher claims may result in lower rates. |
| Philadelphia Fed Survey | Thursday, March 19, 10:00 am, et | 28 | Moderately important. A survey of business conditions in the Northeast. Weakness may lead to lower rates. |
MORTGAGE RATES HIGHER
It is very important to remember that US Treasuries and mortgage-backed securities MBSs, the bonds that dictate mortgage interest rates, are different. A US Treasury is backed by the US Federal Government while MBSs essentially are backed by property and borrowers. While both are debt instruments, they possess very different risk characteristics. A look back to the 2008 financial crisis shows how defaults on mortgages can snowball into chaos. Investors demand higher rates to lend money for mortgages because of this additional risk and others such as prepayment. This risk is why we recently saw the 10Y Treasury hit 0.38% while mortgages remained in the 3% to 4% range. It is true that MBSs and US Treasuries generally trade in the same direction. However, this isn’t a certainty and they often diverge significantly in terms of magnitude of change. Treasuries recently hit all-time lows and mortgage rates spiked higher. The recent financial volatility in stocks and bonds is a strong reminder that stocks do not always go up and mortgage rates do not always continue to push lower. Floating in these uncertain times is very risky.