With little economic news released during the week, and with a Fed meeting and large Treasury auctions scheduled for next week, mortgage rates moved very little this week. Fed purchases of mortgage-backed securities (MBS) during the week were at average levels. Treasury yields and the stock market also were little changed ahead of next week’s major economic events.

The fed funds rate is already close to zero, so no change in rates is expected at Wednesday’s Fed meeting, but investors have widely mixed views on what the statement will say. At the last meeting on March 18, the Fed shocked investors with an aggressive expansion of its mortgage-backed securities (MBS) purchase program from the previously announced $500 billion to a total of $1.25 trillion. On Wednesday, will the Fed reveal new measures to stabilize the financial system or boost the economy? Will it expand existing programs? Has the Fed’s outlook for the economy improved at all? The Fed’s last announcement had an enormous impact on mortgage rates, and this statement will be highly anticipated as well.

Next week’s large Treasury auctions of over $100 billion also may influence mortgage rates. MBS yields must compete with Treasury yields to attract investment funds. If Treasury yields rise, then MBS yields typically follow to some degree. The government needs to issue a huge amount of debt to pay for all its new programs. Investors are concerned that there will not be enough demand for all the Treasuries unless yields move higher. In particular, purchases of US securities by foreign investors may not expand to help absorb the added supply. The results of the Treasury auctions on the first three days of the week will be important for mortgage rates.

Important economic data may take a backseat next week to the Fed meeting and Treasury auctions. The Fed’s announcement will be released on Wednesday at 2:15 et. Expectations vary widely for what the Fed will say (see abo ve). The most significant economic report will be Wednesday’s release of first quarter Gross Domestic Product (GDP). GDP is the broadest measure of economic activity. The two national manufacturing indexes, the Chicago PMI and the ISM index, will come out on Thursday and Friday respectively. Personal Income, Factory Orders, Consumer Sentiment, and Consumer Confidence will round out a busy week. There will be Treasury auctions on Monday, Tuesday, and Wednesday.

Tags: Gross Domestic Product, mortgage-backed securities

Posted on Tuesday, April 28th, 2009 at 12:56 pm and is filed under Mortage Rates. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.