Commentary: The surprisingly lousy 10-year inflation-indexed Treasury note auction yesterday knocked the bottom out of what initially appeared to be a point from which a little rally to fractionally lower rates could be expected to develop.
Yesterday's poor demand for the government's offering of $13 billion worth of 10-year Treasury Inflation-indexed securities has made both domestic and foreign investors especially skittish as Uncle Sam cues up a three-part $99 billion debt auction that will run Tuesday through Thursday next week. Corporate America doesn't want to be left out of the borrowing spree - so they have plans to sell $20 to $25 billion of their own debt next week. The coming heavy round of supply may widely outstrip demand - and that is a condition, should it develop, that is almost certain to put upward pressure on mortgage interest rates - at least through the last Treasury auction on Thursday.
The coming week's economic calendar is not likely going to be much of an influence on the trend trajectory of mortgage interest rates. The Federal Open Market Committee will huddle on Tuesday and Wednesday to plot monetary policy for the next six weeks. The statement that will follow the conclusion of the Fed's meeting will shed some light on how the central bankers interpret the recent improvement in the economic data. The likelihood that the Fed's conclusion that economic growth is uneven and still very vulnerable to setback will not likely differ significantly from the view of the investment community at large. If so, the impact of this event on the trend trajectory of mortgage interest rates will likely be imperceptible.
The coming week's economic reports include December New Home Sales on Wednesday, initial weekly jobless claims and December Durable Goods Orders on Thursday and on Friday market participants will get a look at the first estimate of the pace of economic growth in the last-quarter of 2010 (as measured by Gross Domestic Product). These reports will add a little anecdotal evidence to support the broad opinion of most credit market participants that the economic recovery from the worst slump since the Great Depression gained a little momentum as the previous year drew to a close. That is a view that has already been well priced into the mortgage market - so further upward adjustments to mortgage interest rates will likely be small - if they occur at all.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
