Home Mortgage Interest Rates Were The Lowest of the Week Until Noon.

Market Comment

Mortgage bond prices remained near unchanged last week holding mortgage interest rates steady.  Trade continued to be extremely volatile with discount points rising and falling by as much as 1/2 on a near daily basis.  Once again, gyrating oil prices caused much of the volatility.  The price of a barrel moved as much as $6.00 in a trading day.  Rising oil prices stoked inflation fears and resulted in mortgage rate spikes.

For the week, interest rates on government and conventional loans fell by about 1/8 of a discount point.

The producer price index data Tuesday will be the most important event this week.  Leading economic indicators and the Fed minutes have the potential to cause mortgage interest rate volatility.  The bond market closes early Friday ahead of the Memorial Holiday the following Monday.

Producer Price Index

The producer price index is a measure of prices at the producer level and is important because it is a primary inflation indicator released each month.  Investors are typically able to gain an initial indication of inflationary pressures at the producer level from the release.  If producer prices are increasing, there is a tendency for producers to pass the increases on to consumers in the form of higher priced goods.  It is important to note that the PPI is only a measure of goods, while the consumer price index is a measure of goods and services.  It is possible for the price of goods to remain stable, while the price of services increases.  In this scenario PPI would do little to warn of a change in inflationary pressures, while the CPI report would provide an indication of the inflationary effects of the service component.  This distinction between the two reports shows why most analysts view the CPI as a more accurate indicator of inflation. 

Energy price increases have many analysts concerned about the threat of inflation.  Market participants will gain valuable insight into potential volatility in the financial markets from the release. 

If this week’s producer price index release indicates falling price pressures, mortgage interest rates may improve.  However, if the PPI release indicates an increase in price pressures, mortgage interest rates may push higher.

Mortgage interest rates remain favorable.  This week could result in market swings that are favorable or negative in nature.  Considering the heightened possibility for mortgage interest rate volatility, a cautious approach to interest rate exposure is prudent.