Mortgage Market Update

Did everyone enjoy the last week’s wild ride higher? Be thankful, but don’t think that will continue as likely this week will hold at least a correction.

This week, starting with today is going to be another “wild ride” week. Personally, I think people, even the gurus, missed a small detail in last week’s PCE release. Why? While the year over year numbers were “tame”, and within the Fed range of 1-2% (they were 1.9%), they did inch higher, hinting inflation may be getting worse. I had eluded to the potential for inflation getting worse due to the interest rate cuts in several posts over at the Florida Mortgage Report. The expected rate cut coming on the 11th will fuel that even more.

Where are bonds headed? Odds favor lower, though the overall uptrend may not be broken. I suggest protecting your clients this week by locking, regardless of where mortgage bonds move. Here’s why…

• Mortgage bonds are overbought
• Mortgage bonds are “too far” from their 25-day Moving Average
• Inflation is still a concern, even if not noticed in the last PCE report.
• Jobs forecast is for only 75,000 and a report higher than that will send bonds lower

Certainly, technical factors play into the direction mortgage bonds will move, but they take a back seat to economic data. This week will see the release of the following data:

• Monday: ISM Index (10:00)
• Wednesday: ISM Services Index (10:00), Crude Inventories (10:30)
• Thursday: Initial Jobless Claims (08:30)
• Friday: Unemployment Rate (08:30), Average Work Week (08:30), Consumer Sentiment Index (08:30), Hourly Earnings (08:30), Non-farm Payrolls (08:30)

I think it is fitting that the Jobs report will be released on the 66th anniversary of the attack on Pearl Harbor. Let’s just hope December 7th doesn’t become “A Date Which Will Live in Infamy” in the bond pits. It will certainly be the “main event” of the week.