Market Comment

Mortgage bond prices fell last week pushing interest rates slightly higher. Governments across the globe continued to battle the credit crisis and economic instability. Billions of dollars of debt offerings by the US Treasury continued to be announced. Unfortunately, the additional supply caused bond prices in general to fall and rates to rise the middle of the week. Record weekly jobless claims, weak factory orders, and strong productivity data released Thursday provided much-needed boost for mortgage bonds. For the week, interest rates on government and conventional loans rose by about 1/8 of a discount point.

The retail sales data Thursday will be the most important event this week. The Treasury will auction 3-year, 10-year and 30-year notes and bonds starting Tuesday. The additional supply may pressure rates.

LOOKING AHEAD

Economic Indicator	Release Date & Time	Consensus Estimate	Analysis
3-year Auction	Tuesday, February 10th 1:30 pm, et	None	Very Important.   Treasury to auction 32B in 3-year notes.
Trade Data	Wednesday, Feb. 11, 8:30 am, et	$37 billion deficit	Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates.
10-year Auction	Wednesday, February 11th 1:30 pm, et	None	Very important.  Treasury to auction 21B in 10-year bonds
Weekly Jobless Claims	Thursday, Feb. 12, 8:30 am, et	585,000	Moderately important. A measure of unemployment. An increase in jobless claims may bring lower rates.
Retail Sales	Thursday, Feb. 12, 8:30 am, et	Down 0.3%	Important. A measure of consumer demand. A smaller than expected increase may lead to lower mortgage rates.
30-year Auction	Thursday, Feb. 12, 1:30 pm, et	None	Very important.  Treasury to auction 14B in 10-year bonds
U of Michigan Consumer Sentiment	Friday, Feb. 13, 10:00 am, et	61.5	Important. An indication of consumers' willingness to spend. Weakness may lead to lower mortgage rates.

Trade Data

In the distant past the US economy tended to be viewed as relatively unaffected by economic activity in other countries. However, increased trades with other countries and an increased reliance on foreign purchases of US debt have generated a market awareness of trade-related issues. The exchange rate of the dollar and foreign trade flows are interrelated. One must buy dollars to purchase US exports, and sell dollars to buy imports. Likewise, foreign investment in US debt requires the purchase of US dollars, and is thus affected by exchange rates.

Each month the Commerce Department gathers an enormous amount of detailed data on exports and imports. The data is broken between goods and services trade. The overall trade balance is the dollar difference between US exports and imports on a seasonally adjusted basis. The report also highlights trade flows between the US and various partners. Since the mid-1970's, US imports of consumer and capital goods have exceeded exports, so a merchandise trade deficit has existed. The US has always maintained a service trade surplus, and because this surplus is not enough to offset the merchandise trade deficit, a net export deficit has resulted.

Due to the overwhelming amount of data considered, trade is difficult to forecast, and can present surprises. For a variety of reasons, the financial markets will often be unaffected by surprises in trade data. However, the data still has the ability to cause mortgage interest rate volatility.

A higher than expected trade deficit could hurt gross domestic product estimates. Lower growth expectations have historically caused stocks to fall and bonds to rise.

Keep in mind that market conditions as of late have been choppy and unpredictable. Any future data releases showing a rebound in the economy could lead to mortgage interest rate volatility, so lower rates are not a given. A cautious approach to float decisions should be taken.

Conroe Mortgage and Home Loans