Monday, March 30, 2009

Trading activity in the mortgage market is light and sporadic this morning.

The Federal Reserve was an active buyer of Treasury securities again this morning as the central bank continues its efforts to reduce consumer interest rates and stimulate economic growth. The central bank has announced plans to enter the credit market every day this week through April 2nd with the intention of buying a range of Treasury securities with varying maturity dates.
All of this Fed activity will likely serve to hold mortgage interest rates near current levels - at least temporarily. The money the Fed is spending is part of the $300 billion that it has allocated for the direct-purchase of Treasury obligations. While $300 billion sounds like a lot of money - it only amounts to roughly 15% of the $2+ trillion the government intends to borrow this fiscal year (ending in September).

There is no denying the Fed's direct-purchase program is helping sustain mortgage interest rates at levels that would not otherwise be available. That's the good news. The bad news is that it is not a question IF the Fed's financial punch-bowl will run dry - it is simply a matter of WHEN. Without significant new infusions of capital pumped into the system by the Fed or a major event driven "flight-to-quality" buying spree -- there is reason to believe we will do well to get through the second week of April without sustaining a noticeable uptick in mortgage interest rates. If assessments proves accurate, expect the central bank will be a less than active buyer of mortgage-backed securities through the last week of May - choosing instead to "keep-their-powder-dry" to support the more important late-spring early summer buying season in the housing market.

The few economic reports scheduled to be released during the early part of the week will be completely overshadowed by Friday's March Nonfarm payroll figures. Nobody expects the numbers to show any sign of job creation - but should the data indicate the pace of job loss is beginning to taper off --such news will likely tend to put some upward pressure on mortgage interest rates.