Commentary: Mortgage interest rates are edging fractionally lower this morning - nudged along by mounting political turmoil in the Middle East. Oil prices have climbed to a 2 ½ year high on views that violence in Libya and other countries in the region could cut oil output.
Mortgage investors currently see the rise in oil prices as a "double-edged sword." On the one hand rising oil prices will certainly stoke inflation concerns - a negative for the prospect of notably lower mortgage interest rates. On the other hand, rising oil prices tend to limit economic growth as the consumer is forced to reduce discretionary spending to pay their rising fuel costs. If this condition lasts long enough -- the economy will slow, the demand for capital will soften, and mortgage interest rates will creep fractionally lower. It is too early to gauge which of these two scenarios will likely prevail - but you can bet mortgage investors are keenly monitoring this developing story.
The Conference Board, a private non-profit economic forecasting firm, said their index of consumer sentiment increase to a reading of 70.4 in January from 64.8 the prior month. It is the highest mark for this index since February 2008. Even though you may hear media sources excitedly referring to the improvement in this measure of consumer confidence - I think it is important to put today's report into perspective. The Consumer Confidence index averaged 97 in the six years leading up to the Great Recession that began in December 2007 and ended in June 2009. While January's increase is certainly a step in the right direction - there is still a long way to go before consumer confidence gets back to levels once taken for granted. Mortgage investors gave this report nothing more than a passing glance.
Uncle Sam will be in the credit markets today looking to sell $35 billion of 2-year Treasury notes. The auction will conclude at 1:00 p.m. ET and I'll provide results on my website as soon as possible following the conclusion of this event. Some market players see a growing likelihood the Treasury will soon be forced to cut the supply of bills and notes it sells to avoid hitting the legislatively mandated debt ceiling. Whether such an event actually occurs doesn't really matter much at this juncture - the mere idea market participants are thinking about the possibility should contribute to the expected strong demand for today's 2-year note offering. If this assessment proves correct, a solid Treasury auction this afternoon will tend to support the near-term prospects for steady to perhaps lower mortgage interest rates.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
