MARKET COMMENT
Mortgage bond prices finished the week lower which put upward pressure on rates. Rates improved Monday morning in response to the surprise Sunday additional rate cut and MBS purchase announcement. Unfortunately, that was short-lived as rates spiked significantly higher the remainder of the week. The coronavirus impact started appearing in the data. Retail sales fell 0.5% versus the expected 0.1% increase. The NAHB Housing index was 92. Analysts anticipated a reading of 94. The February housing starts figure surprised to the upside. Starts were 1599K vs 1475K. The US Administration invoked the Defense Production Act and HUD indicated there will be no foreclosures or evictions until the end of April. The Treasury secretary warned unemployment could hit 20%. Mortgage interest rates finished the week worse by a wide range. In some instances, rates were worse by over a full discount point.

LOOKING AHEAD

Economic Indicator Release Date & Time Consensus Estimate Analysis
New Home Sales Tuesday, March 24,
10:00 am, et
750K Important. An indication of economic strength and credit demand. Weakness may lead to lower rates.
Durable Goods Orders Wednesday, March 25,
8:30 am, et
Down 0.9% Important. An indication of the demand for “big ticket” items. Weakness may lead to lower rates.
FHFA House Price Index Wednesday, March 25,
10:00 am, et
Up 0.2% Moderately Important. A measure of single-family house prices. Weakness may lead to lower rates.
Weekly Jobless Claims Thursday, March 26,
8:30 am, et
220K Important. An indication of employment. Higher claims may result in lower rates.
Q4 GDP Third Estimate Thursday, March 26,
8:30 am, et
Up 2.1% Very important. The aggregate measure of US economic production. Weakness may lead to lower rates.
PCE Core Inflation Friday, March 27,
8:30 am, et
Up 0.1% Important. A measure of price increases for all domestic personal consumption. Weaker figure may help rates improve.
Personal Income and Outlays Friday, March 27,
8:30 am, et
Up 0.3%,
Up 0.1%
Important. A measure of consumers’ ability to spend. Weakness may lead to lower mortgage rates.
U of Michigan Consumer Sentiment Friday, March 27,
10:00 am, et
95 Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.

MORTGAGE RATES VOLATILE
Mortgage interest rates continued to fluctuate wildly with major spikes higher the latter portion of last week despite the recent rate cuts by the Federal Reserve and $200B in Fed MBS purchases. The coronavirus outbreak continued to spread across the globe and many countries basically shut down all but essential elements of society.

The core challenge investors and the financial markets face is pricing anything in this environment. Risk models that worked during periods of stability do not necessarily return an accurate picture of risks during a global viral pandemic. For example, what is the value of a hotel chain if no customers are traveling? In the case of a stock the value would plummet as the risk increased. The same is true for mortgage-backed securities (the bonds the dictate mortgage interest rate pricing.) What is the value if the performance of the investment could be in question? Will an MBS perform in the future like it has historically? The point is that the MBS market is subject to all the current uncertainty that has struck every facet of life and business. This caused prices to fall and rates to rise in the short-term.

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