When you travel as much as I do, eventually you cannot find new places to go, which is where I find myself as I have been just about everywhere I can go in my current aircraft.  Mortgage bonds, however, with the aid of the Fed, have managed to break into new territory.

As promised, the Fed is no longer “all talk and no action” as they officially entered into the markets as the buyer of first resort when it comes to mortgage backed securities.  You have heard me talk about the problems with artificially propping the markets, creating the “mortgage rate bubble” in effect, and the Fed is now well on their way to making that happen.  Each week from now on, at least until the current 500 billion is gone, the Fed will release their level of involvement, with last week being a mere $10.2 billion.  At that rate, the Fed can keep rates low for nearly a year if the market doesn’t kill them first.

Beyond the Fed, we saw some major data come in, especially along the jobs front.  As expected, the jobs data was dismal again and unemployment rose, but it wasn’t as bad as was forecast by the ADP employment report, again marking its inaccuracy.  Both the ISM Services Index and Initial Jobless Claims beat their expectations, though neither report indicate a strengthening economy.  Stocks also were under selling pressure last week as numerous negative reports came from some big names, like the staple of the economy these days, Wal-Mart. 

Mortgage rates did reach historic levels, however we are seeing pricing improve ever so slightly compared to the levels they should be going.  This is indicative of lenders hedging against added risks, which I have also talked about before.  As this week starts out, you can expect the Fed to be buying again, but their buying will likely only serve to prevent mortgage rate increases and not to lower rates any further, something only time will tell for sure as not even the charts can forecast the Fed’s level of involvement each week.

This week will see some more major players on the data front, along with at least one major speech from Bernanke.  As is fairly typical these days as the Treasury is selling off debt to pay for their spending spree, numerous auctions will be occurring this week.  Here is a breakdown of data…

• Monday:  3-month Bill Auction (1:00), 6-month Bill Auction (1:00)
• Tuesday:  Bernanke Speech - London (8:00), 4-week Bill Auction (1:00), 52-week Bill Auction (1:00)
• Wednesday:  MBA Purchase Applications (7:00), Retail Sales (8:30), Import/Export Prices (8:30), Business Inventories (10:00), Crude Inventories (10:30), Beige Book (2:00)
• Thursday:  Producer Price Index (8:30), Initial Jobless Claims (8:30), Empire State Manufacturing Survey (8:30), Philadelphia Fed Survey (10:00), Money Supply (4:30)
• Friday:  Consumer Price Index (8:30), Treasury International Capital (9:00), G.17 Statistical Release (9:15), Consumer Sentiment (10:00)

As you can see, I have added some reports to the list this week, along with Treasury auctions scheduled.  Many of the reports you may not have even heard of before, but I am finding they are impacting the markets more these days.  One report which you may find interesting is Money Supply, which has fallen by the wayside in recent years but is starting to make waves again.  I am also going to start listing major Fed speeches, like tomorrow’s, when posted on the FRB main site.  Other Fed speeches may occur as well, but I do not have the time to hunt for them each week and some never get posted much in advance anyway.

As this week gets started, you can see some big data plays coming, namely Retail Sales and CPI.  On the technical side of things, mortgage backed securities remain on the overbought side again, though remain trapped in a sideways trading range as well, held within mostly by the Fed’s activity.  So long as the Fed continues to artificially inflate prices, mortgage rate forecasting will be difficult due to the uncertainty about exactly what the Fed will do each day, let alone each week.  We only know that they will be buying MBS and will report the results each Thursday.  Beyond that, fundamentals and charts are showing mortgage rates will most likely remain steady this week unless the data starts showing an improving economy or increased inflation.