The mortgage market will be under siege this week with three Treasury auctions, the release of the government's bank stress test and the latest numbers from the employment sector on Friday.
The Treasury will auction $35 billion of three-year notes on Tuesday, $22 billion of 10-year notes on Wednesday and $14 billion of 30-year bonds on Thursday. The yield on all three securities is within shouting distance of pre-Thanksgiving levels - which should make them very attractive to domestic and foreign investors alike. If so, Uncle Sam's three-part Treasury auction this week should leave mortgage interest rates relatively unscathed.
The government's release of the stress test for banks late on Thursday will be, in my opinion, the "wild card" of the week. Passing grades for the majority of the 19 banks involved will likely support a continued rally in the stock market at the expense of fractionally higher mortgage interest rates. On the other hand, if the stress test reveals the majority of banks are more fragile than expected look for stocks to swoon as investors scramble to move capital into the relative safe haven of Treasury obligations and mortgage-backed securities.
Friday's 8:30 a.m. ET release of the April nonfarm payroll report may prove to be a non-event with respect to its impact on the mortgage market. Mortgage investors have already priced-in expectations for a 620,000 job loss and a 0.4% gain in the national jobless rate to 8.9% from the March level of 8.5%. Employment numbers that happen to be worse than forecast -- will not likely cause much of a stir in the mortgage market. The same cannot be said for numbers that are not as bleak as forecast. In the unlikely case the headline nonfarm payroll report shows the economy shed 600,000 or fewer jobs and/or the national jobless rate posts a reading of 8.8% or less look for mortgage investors to register their surprise by pushing mortgage interest rates higher.
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