March 24, 2008

Mortgage bond prices rose last week pushing mortgage interest rates lower. Trading was volatile the entire week. The producer price index showed inflationary pressures, which hurt bonds earlier in the week. The Fed worked with Fannie Mae to restructure capital requirements. In effect, this added additional capacity helping to alleviate some of the liquidity concerns plaguing the mortgage bond market.

For the week, interest rates on government and conventional loans fell by about a half of a discount point.

The consumer confidence data Tuesday will likely set the tone for trading. The potential for market volatility is high surrounding durable goods, new home sales, GDP, income, and outlays data. Core PCE, the inflation component of the income and outlays release, will be carefully watched.

Why Data is Important

One of the easiest and most important things to do when making a decision whether to float or lock a loan is knowing what data is going to be released. Economic releases are important because they provide a snapshot of a portion of the economy. Data is even more important in that it is often the cause of market volatility. Upcoming data events are readily available and there is no excuse not knowing what data will be released in the week ahead.

While an in depth understanding of an economic event can help a person make informed decisions, it is more important to have a rudimentary understanding of when an important piece of data will be released and what basic effect that data can have on the market. Understanding the nuances of a release does very little for a person if they are blindsided by not knowing when the release will occur. Accurately predicting how each and every release will come in is impossible. Take a look at the recent consumer price index report for evidence of that. Analysts were certain consumer prices would rise considering the recent run-up in oil and commodity prices. Consumer prices came in unchanged along with the core rate.

Floating into important economic data can be very risky and can expose a person to huge market swings.

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