Market Analysis

On Monday, the mortgage market was slightly negative despite the Dow falling over 100 points to close below the 10,000 level.  Per prior market analysis posts, while it is possible a stock market correction of greater magnitude than what has already occurred may support interest rates at current to possibly lower levels, the elephant in the room right now continues to be the impending Federal Reserve exist from their mortgage-backed security purchase program which most analysts believe will cause an immediate increase in rates of .5%.

This week's economic calendar is light.   The reports that are most likely to trigger volatility in the mortgage markets are both released Thursday morning.  They are the  Initial Jobless Claims for the week ended 2/06 (claims are expected to be down by 15,000) and January Retail Sales (expected up .5% vs down .3% in December and ex-auto expected up .5% vs down .2% in December).   Weaker than expected data from either of these reports would be expected to be supportive of current rates.  Stronger than expected data (or even Retail Sales hitting the .5 increase that is projected) may put upward pressure on rates.

The US Treasury is auctioning $81 billion in notes and bonds this week, with $40 billion of 3-year notes on Tuesday, $25 billion of 10-year notes on Wednesday and $13 billion of 30-year bonds on Thursday.  So far demand for the Treasury auctions has been strong and this week is not expected to be different.

On Wednesday, Fed Chairman Brenanke will testify before the House Financial Services Committee about plans to unwind various stimulus programs.   There will be a question and answer session after his prepared remarks.  Investors will be watching these remarks carefully.  If Bernanke makes it abundantly clear that the Fed really is going to stop buying mortgages, we could see pressure on rates.