hat an interesting week it is starting of to be for me.  It will also likely be an interesting week for mortgage backed securities as well.  For those interested, it looks like I will be on FOX Business News at 1:00pm ET to discuss this morning’s article in the Wall Street Journal.

As for mortgage bonds, this week will be chock for of “fun”, but let’s recap last week first.  One of the biggest stories was that the Fed said they would continue to buy MBS, and they finally gave their exit strategy, a slow pullback of buying so as to let the air out slowly from the “mortgage rate bubble”, and hopefully prevent a bursting of it.  For your clients (or any homebuyer reading this), odds are likely that higher interest rates are ahead, it is just a question of when.  Hmm, sounds like what I previously said would happen when they got done manipulating the markets.  As for the rest of the week, Treasury Auctions went well overall, housing stats were down questioning the recovery, and the economy via Durable Goods Orders, was not looking very good.  Hey, but who cares, right?  Consumer Sentiment climbed above expectations.

Enough of dwelling on the past.  What lies ahead? 

It could be a bumpy ride for mortgage backed securities this week as we will see some “whammies” on both sides of the equation, inflation and economic improvement, culminating with the Jobs Jamboree.  Yes, it is that time of month again.  Here is what is currently on the agenda for the week…

• Monday:  3-month T-Bill Auction (1:00), 6-month T-Bill Auction (1:00)
• Tuesday:  S&P Case-Shiller HPI (9:00), Richard Fisher Speech (9:50), Consumer Confidence (10:00), 4-week T-Bill Auction (1:00), Charles Plosser Speech (7:00)
• Wednesday:  MBA Purchase Applications (7:00), ADP Employment Report (8:15), GDP (8:30), Chicago PMI (9:45), Crude Inventories (10:30), Dennis Lockhart Speech (10:30)
• Thursday:  Personal Consumption Expenditures (PCE – 8:30), Personal Income (8:30), Personal Spending (8:30), Jobless Claims (8:30), 30-year T-Bond Announcement (9:00), ISM Manufacturing Index (10:00), Pending Home Sales (10:00), Treasury Announcements (11:00), Sandra Pianalto Speech (5:30), Dennis Lockhart Speech (5:30)
• Friday:  Nonfarm Payrolls (8:30), Unemployment Rate (8:30), Average Work Week (8:30), Hourly Earnings (8:30), Factory Orders (10:00)

As you can see, this week will be action-packed, though it will start out light.  With the big reports on the economy and on inflation coming in this week, the sideways trading pattern will be tested, maybe even on both sides, and may even break apart as the week unfolds.

Looking at the charts, it appears that lower mortgage rates may be in the future, at least as the week gets started.  Virtually all signs point to this fact as stochastic indications are positive, though starting to move into overbought territory and we have seen some positive signs in the direction of moving averages, including the potential of another positive crossover if things keep up.  In fact, about the only negative is that the 100-day moving average is still descending, but even this will flatten out and may even start to climb this soon.

The bottom line for this week is that lower mortgage rates may be upcoming, though exercise extreme caution as the data starts to flow, especially if inflation does start to finally show its ugly side.

Tagged as: MBS Commentary, Mortgage Market Analysis, Mortgage Rate Forecast