Sep 11, 09 Market Updatepremier mortgage group | Friday, September 11th, 2009 | Comments Off
RATES IMPROVE DESPITE TREASURY DEBT AUCTIONS
Mortgage interest rates improved this past week despite supply pressures from $70 billion in Treasury debt auctions. The auction of 3 Year Notes, 10 Year Notes, and 30 Year Bonds generally received strong demand. There was not much economic data released this past week. Economic data of note included July Consumer Credit, which dropped $21.6 billion on expectations that it would fall by $4.5 billion. June Consumer Credit was revised lower to a drop of $15.5 billion from a previously reported drop of $10.3 billion. Since consumer spending accounts for about 70% of GDP, this drop in consumer credit calls into question the economic recovery. Also of note, weekly jobless claims fell more than expected and the University of Michigan Consumer Sentiment Index was stronger than expected.
The new decline in rates underway is counter-intuitive – downright odd. The economy has obviously stopped its free-fall, panic has receded in the credit markets, and although the economy is not in a “V” recovery, it is growing. If all the forces driving money to safe bonds – Treasurys, MBS, quality corporates – are now weakening, shouldn’t the cash be running back out, rates rising? Nope. Inflation fears are down, which makes low yields feel safe. And the decline in rates does not mean that adequate credit is at last pushing the economy forward – credit is tighter now than ever. No matter how low rates are, too few people can qualify at new and crazy standards. It will be years before the banking system restores adequate capital, and adequate credit begins to flow. Here at summer’s end, it is more and more clear that recovery will be long and slow, a good spot to buy bonds, especially government-backed mortgages.