Last Week; interest rates increased on treasuries but remained unchanged for the mortgage markets The stock market rallied, defying those that continue to expect a big decline. Equity markets had a small retracement two weeks ago but it only lasted a few days and took the DJIA down 6.0% from its recent high last year. Jan personal income was less than expected, up 0.1% while personal spending was strong at +0.5%. Feb auto sales were expected to have increased, and they did; the only company that reported a decline was Toyota.

The Feb employment report last Friday capped a good week for the various economic reports; non-farm job losses early in the week were for a decline of 10K but as the week progressed the estimates rose to -70K based on guesses as to what the bad weather might have done to employment. A waste of energy as it turned out, non-farm job losses were only down 29K and when the revisions to Jan and Dec are taken into account, there have been no job losses in the past 3 months. On the housing front; Jan pending home sales jumped 12.3% frm Dec. Summing it; the data last week was better than expected and rallied equities while forcing treasury yields higher.

This Week; there are only a few data points that will garner attention; they do not appear until Thursday and Friday when retail sales, weekly jobless claims and the U. of Michigan consumer sentiment index hit. The key this week is Treasury auctions; a total of $74B in 3 yr and 10 yr notes and a 30 yr bond on Tuesday, Wednesday, and Thursday. While the rate markets don’t pay direct attention to them; Treasury also will sell an additional $136B in Treasury bills (obligations with one year or less in duration). Each month Treasury sells $192B in notes and bonds (2 yr through 30 terms), so far the demand for the debt has been very good, foreign investors and direct bidders (anonymous) are stepping up to the table of deficits to fund it. The interest markets are still holding firm, but hitting up against strong technical resistance on the bellwether 10 yr note at 3.60%/3.58%.

Its been a solid resistance level since mid-January; the 10 yr note closed at 3.68% last Friday after declining to a 3.59% close the previous Friday (2/26); last week the 10 yr tested the resistance level everyday, until Friday. The 10 yr note rate at Friday’s close is the highest since 2/23. Mortgages have held strong against treasuries recently, ignoring the choppy and generally non-trending treasuries. Although the mortgage markets are presently holding well, if treasury rates break out to an up-trending move (3.75% on the 10 yr) mortgage rates will follow quickly. Unless there is a major shift in sentiment about the strength of the economic rebound, to the view of a double dip coming, interest rates won’t likely decline much more. The overall view is for increasing rates this year; estimates from 4.15% on the 10 yr note to as high as 5.00%; we don’t see 5.00%, more likely 4.25%. That would mean 30 yr mortgage rates at 5.50% to 5.60%

Summary:

If you’re shopping for a home or a refinance, though, don’t rest on your laurels. After Friday’s big sell-off, this week opens into a major headwind and, plus, the Federal Reserve’s support for mortgage markets ends in just 3 weeks. (You can also see my blog post as well.)  So, without much data for the markets to lean on, I’m afraid upward momentum is the name of the game. After last week’s mortgage rate performance, Thursday may have been the best day to lock in. To minimize your risk, consider locking in against any further rate hikes.

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