Out with the old and in with the new, at least that is how the calendar looks as we said so long to 2008 and welcome in 2009. Mortgage bonds did not receive a very warm welcome, however, closing down the first day of trading in the new year. Unlike the Christmas week, this week was quite volatile to say the least, bringing back some not-so-fond memories.
Last week was a light data week along with it being a shortened trading week. Nevertheless, it was volatile every day with most days ending opposite of where they began in the morning, including Friday, which was quite significant in that the ISM Index was released and it was the day after the Fed reaffirmed it would be buying up about $500 billion in mortgage backed securities.
The week started off with the Israelis attacks on Hamas and that brought uncertainty about oil supply and resulted in oil prices climbing. GMAC got their $6 billion from the Treasury, ensuring the government will do whatever it takes to bail out the big companies facing bankruptcy in the current economy. As the data flowed, we saw Chicago PMI beat expectations, followed by Consumer Confidence missing by a long shot. Even the ISM Index came in below expectations and marked a dismally performing economy. But in the end, not even the Fed could prevent mortgage rates from ticking slightly higher.
As we get started the first full week of trading in 2009, where are mortgage rates going to go? We are again going to be light on data as the week gets started, but we will end the week with a bang, the monthly Jobs Jamboree. Here is the breakdown of data scheduled:
- Monday: No data
- Tuesday: ISM Services Index (10:00), FOMC Minutes (2:00)
- Wednesday: Crude Inventories (10:30)
- Thursday: Initial Jobless Claims (8:30)
- Friday: Non-farm Payrolls (8:30), Unemployment Rate (8:30), Hourly Earnings (8:30), Average Work Week (8:30)
As the week starts, news and technical factors will be in control, so let’s take a look at the technical indications. Mortgage backed securities continue to remain in a sideways pattern, sitting just below their 10-day moving average and with their 25-day moving average coming up to meet them. Stochastic indications have finally retreated and are offering mortgage bonds some room to move higher again, but it still appears that they lack the motivation to break higher than their current trading range.
News has already hit the airwaves that a new $1 trillion stimulus package will be on Barack Obama’s desk by mid February. The unending spending of our government to prolong the inevitable will be met with dire consequences in all likelihood. For my take, you can read the following two posts:
Mortgage Rates Continue to Climb, Reach Double Digits
US Inflation Approaches 20%
What I am expecting this week regarding mortgage rates is that they will likely tick down slightly, but unless they can muster some real strength, I highly doubt they will drop significantly. Even if they break lower than their current trading range, with the Fed being the principal buyer, that “mortgage rate bubble” may grow too big and pop soon, and lenders will likely be hedging so pricing will not improve significantly either.
(Updated as I overlooked Tuesday’s data and added it in)
So if we have hyper inflation (from the article you linked to) Would this math work
Buying a place with
200k price – 160 mortgage – 1500 rent – 1400 mortgage
After inflation
400k price – 160 mortgage – 3000 rent – 1400 mortgage
Even though the house is not going up because its all inflation it seems you could still make a killing by increased cashflow.
How long do you think Obama’s stimulus is going to take to actually start affecting the markets? It may be too late if it goes beyond Feb. There’s trouble all over the world. One of India’s biggest software companies is buckling under a Madoff like fraud which looks really hue. Its going to send ripples all across the world, and especially in Silicon Valley. Plus, Microsoft is reportely planning a massive layoff in the second half of Jan. If startups in Silicon Valley start going bust, that’s going to hit sentiment really hit hard.
Austin,
Theoretically, yes. However, there is no guarantee that the home value or rent will be able to increase sustainably as other market forces play into the equation.
Ling,
I don’t expect Obama’s stimulus package to even be in place in Feb., with the effects not occurring until the summer at the earliest. As he is joining Bernanke and Paulson in trying to open the floodgates of credit, hyper inflation becomes even more of a possibility in the future. As for the the overall economy, reenter the world of stagflation.