Daily Commentary by Larry Baer: Mortgage interest rates are "treading
water" today with nothing in the way of economic data to influence trading
action one way or the other. Investors' worries about the economic impact
of automatic government spending cuts set to begin March 1st is
currently fueling what I would consider rather anemic
"flight-to-quality" buying of Treasury debt obligations and agency
eligible mortgage-backed securities. The increased demand is not strong
enough to drive mortgage interest rates notably lower -- but it is certainly
sufficient to retard any threat of an immediate upward move.
The next big
potential market moving event will be Fed Chairman Bernanke's semi-annual
testimony to Congress on monetary policy issues. Mr. Bernanke will appear
before the Senate Banking Committee on Tuesday, February 26th at
10:00 a.m. ET and the House Financial Service Committee on Wednesday, February
27th at 10:00 a.m. ET. Mortgage investors will be
listening intently to determine if the Fed Chairman will provide any clues as
to when the central bank might consider winding down its $85 billion per month
of Treasuries and agency eligible mortgage-backed securities purchases. I
think it is highly probable Mr. Bernanke will stick to his guns, reinforcing
his long held position that quantitative easing will continue for the
foreseeable future. If my assessment proves accurate, this event will
likely cause an uptick in price volatility on Monday, and into early trading on
Tuesday -- before it dissolves to the point that it does not exert any
significant influence on the trend trajectory of mortgage interest rates.
The coming week will
be a busy one - both in terms of economic news, Treasury auctions, and
events. Uncle Sam will be in the credits markets looking to borrow $99
billion in a three-part auction series that begins with 2-year notes on Monday,
5-year notes on Tuesday, and wraps-up with 7-year notes on Wednesday. As
I mentioned earlier, Fed Chairman Bernanke will capture investors' attention as
he testifies on monetary policy issues on Tuesday and Wednesday. $81+
billion of automatic government spending cuts will likely begin on Friday.
The economic
calendar will include Tuesday's 10:00 a.m. release of January New Home Sales
figures - Thursday's 8:30 a.m. ET release of the final revision to 4th
quarter Gross Domestic Product - and the busy week will conclude when Friday's Institute
of Supply Management's
Manufacturing Index hits the news wires at 10:00 a.m. ET.
THE
MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
