Fed Chairman Bernanke likely "greased-the-skids" for this afternoon's $42 billion 5-year Treasury note sale when he told Congress and the world that a weak job market and low inflation will allow the central bank to keep their benchmark interest rates at very low levels for a long time. Mr. Bernanke characterized the economy as weak and indicated that the Fed's projections indicate unemployment will likely remain exceptionally high well into 2012. Credit market investors were quick to boil all of Mr. Bernanke's rhetoric down to its bare essence - inflation pressures will almost surely remain well contained for the foreseeable future -an assessment that tends to be supportive of the prospects for steady to perhaps fractionally lower interest rates for government debt obligations as well as mortgage-backed securities.
This morning's soothing words from Fed Chairman Bernanke and stellar results from yesterday's two-year note auction should support aggressive bidding at today's 5-year note auction. If so, this event will likely have little, if any noticeably impact on the trend trajectory of mortgage interest rates.
The Commerce Department reported earlier today that it appears sales of new homes fell 11.2% in January while the December sales figure was revised 1.75% higher. Mortgage investors gave the data little more than a passing glance. The confidence level in the validity of this data is exceptionally low - even for the government data wonks charged with collecting and reporting the numbers. The standard error reported for the January new home sales figures is plus or minus 14% -- which means January sales might have actually been up 2.8% from month earlier levels - or dramatically lower than today's headline number suggest. The five month trend showing sales drifting lower at a 5.7% pace is probably a far better representation of conditions in the new home market.
In other news, the Mortgage Bankers of America have released their mortgage application index for the week ended February 19th. The overall demand for mortgage loans fell by 8.5% last week with purchase applications slipping 7.3% lower and refinance loan demand falling 8.9% lower. The MBA said borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 5.03%, up 0.9 percentage points from the prior week. Last week's average rate was above the all-time low of 4.61% set in the week ended March 27th, but below the year-ago level of 5.07%
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