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  • Writer's pictureJenny Phung

Mortgage Market Update

This week brings us the release of six pieces of relevant economic data for the bond market to digest, in addition to a couple of Treasury auctions and the Ukraine/Russia crisis to watch. The financial markets will be closed tomorrow in observance of the President's Day holiday, so don't expect to see new mortgage pricing until Tuesday morning.

This weekend’s Russia headlines indicate that an invasion of Ukraine is imminent and could come any day. The markets won’t be open tomorrow to react to this weekend’s news but it isn’t going to go away before Tuesday’s open. This topic will likely affect the markets and mortgage rates this week also. There are concerns that an invasion would fuel further inflation pressures in the economy, particularly with energy costs (gas and home heating), which is bad news for bonds. That said, times of military conflict usually hurt stocks and boost bond prices that lowers yields and mortgage pricing. In other words, this could be a favorable event for mortgage rates, at least temporarily.

February's Consumer Confidence Index (CCI) will begin this week’s activities late Tuesday morning. The Conference Board will release this index that measures consumer confidence in their personal financial situations. If consumers are feeling good about their own financial and employment situations, they are more apt to make large purchases in the near future. Since consumer spending makes up over two-thirds of the U.S. economy, related data is considered important in terms of gauging economic growth. It is expected to show a decline in confidence from the 113.8 reading in January. A lower reading than the forecasted 109.0 would be considered good news for bonds and mortgage rates as it would indicate consumers are less likely to make a large purchase in the near future than many had thought.

Wednesday does not have a morning economic report but does have the first of this week’s two Treasury auctions taking place. There will be an auction of 5-year Notes Wednesday and 7-year Notes on Thursday. Neither of these sales will directly impact mortgage pricing, but they can influence general bond market sentiment. If the sales go poorly, we could see broader selling in the bond market that leads to upward revisions to mortgage rates. However, strong sales usually make bonds more attractive to investors and brings more funds into the bond market. The buying of bonds that follows often translates into lower mortgage rates. Results of the sales will be posted at 1:00 PM ET each auction day, so look for any reaction to come during early afternoon hours.

Early Thursday morning will be the first revision to the 4th Quarter Gross Domestic Product (GDP) reading. The GDP is considered to be the benchmark indicator of economic growth that comes in a preliminary version followed by two revisions one month apart. This is the second version of last quarter and is expected to be revised slightly higher from the initial 6.9% annual rate of growth. Because bonds are more attractive to investors during times of economic weakness, the bond market and mortgage rates should improve if there is a noticeable downward revision.

Also Thursday morning but at 10:00 AM ET is the release of January's New Home Sales report. This is the least important report of the week and is the sister report to last week's Existing Home Sales data. It also measures housing sector strength and mortgage credit demand but covers such a small part of all home sales. Therefore, it usually does not have a significant impact on bond trading or mortgage rates unless it shows a significant surprise. Thursday's report is expected to show a decline in sales of newly constructed homes, hinting at weakness in the new home portion of the housing sector. The smaller the number of sales, the better the news it is for bonds and mortgage rates.

Friday has the final three relevant economic reports, starting with January's Personal Income and Outlays report at 8:30 AM ET. This data gives us an indication of consumer ability to spend and current spending habits. Current forecasts call for a decline in income of 0.3% while spending is expected to have risen 1.5%. Rising income means consumers have more money to spend. And stronger levels of consumer spending help fuel overall economic growth, making long-term securities such as mortgage-related bonds less attractive to investors. This report also contains a key inflation reading that the Fed relies on during their FOMC meetings. Accordingly, the weaker the readings, the better the news it would be for mortgage rates.

Next up is January's Durable Goods Orders report, also at 8:30 AM ET. It is an important measurement of manufacturing sector strength that tracks orders at U.S. factories for items expected to last three or more years. Products such as electronics, refrigerators, airplanes and autos are examples of these big-ticket items. Analysts are expecting to see a 0.6% increase in new orders, hinting at manufacturing sector growth. It is worth noting that this data is known to be quite volatile from month to month, so large swings are common and won't have as much of an impact as it would in many other reports.

The University of Michigan's revision to their Index of Consumer Sentiment for February will close out the week's calendar late Friday morning. Forecasts show this index coming in at 61.7, unchanged from the preliminary reading two weeks ago. It is fairly important because it helps us measure consumer confidence that translates into consumer willingness to spend, but it is not considered to be a major market mover. A large decline would be considered good news for rates.

Overall, the most important day for rates is Tuesday as that is the first day the markets can react to the latest Ukraine news, but it is possible to see rates move noticeably multiple days this week. No day stands out as the best candidate for calmest with so much scheduled. There is a strong possibility of seeing a very active week for rates, so keep an eye on the markets if still floating an interest rate and closing in the near future.

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