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Fed Minutes Jolt Mortgage Rates
There was
a lot of daily volatility for mortgage rates this week. On Tuesday, the Fed
Minutes revealed a lack of enthusiasm for further easing, and this caused
mortgage rates to jump. Increased concerns about Europe then helped
mortgage rates improve on Wednesday and Thursday. The net result was a
small increase in rates for the week.
Shifting
expectations for future Fed policy have had a large influence on mortgage
rates lately, and that was certainly true on Tuesday. The Minutes from the
March 13 Fed meeting caused investors to lower their expectations for
additional quantitative easing (QE3). The Minutes suggested that most Fed
officials would support QE3 only if the economy performs much more poorly
than expected. Under another round of quantitative easing, the Fed would
purchase mortgage-backed securities (MBS), and the potential for added
demand from the Fed makes MBS more appealing. So, when the perceived
likelihood for QE3 decreases, investors sell MBS, and lower MBS prices lead
to higher mortgage rates.
By
contrast, increased concerns about Europe caused investors to shift funds
into safer assets such as MBS, which was favorable for mortgage rates.
Investors viewed weaker than expected economic growth data and rising bond
yields in troubled countries such as Spain as indications that financial
conditions in Europe may be getting worse. Slower economic growth tends to
reduce future inflationary pressures, which also benefits mortgage rates.
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Also Notable:
- Weekly Jobless Claims
fell to the lowest level since April 2008
- The consensus
forecast is for an increase of 200K jobs in March
- The European
Central Bank (ECB) made no change in rates
- The Treasury will
auction $72 billion in 3-yr, 10-yr, and 30-yr securities next week
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Average 30 yr fixed
rate:
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Last week:
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-0.10%
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This week:
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+0.05%
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Stocks (weekly):
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Dow:
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13.050
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-150
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NASDAQ:
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3,075
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-25
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Week
Ahead
Mortgage
markets will close early at 12:00 et tomorrow in observance of Good Friday.
The important Employment report will come out tomorrow at 8:30 et. As
usual, this data on the number of jobs, the Unemployment Rate, and wage
inflation will be the most highly anticipated economic data of the month.
Next week, Import Prices and the Fed's Beige Book will be released on
Wednesday. The Producer Price Index (PPI) focuses on the increase in prices
of "intermediate" goods used by companies to produce finished
products and will come out on Thursday. The Consumer Price Index (CPI), the
most closely watched monthly inflation report, will come out on Friday. CPI
looks at the price change for those finished goods which are sold to
consumers. In addition, there will be Treasury auctions on Tuesday,
Wednesday, and Thursday.
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