Thursday, March 26, 2009

Mortgage investors are just killing time this morning as they await the results of the last of this week’s three big note sales by the Treasury Department. The Treasury will wrap things up with this afternoon’s $24 billion 7-year note sale.

When the Treasury reintroduced seven-year notes last month after a 16-year hiatus, investors’ appetite was very weak. Concerns that today’s offering may draw tepid bidding as well will likely weigh on the credit market – resulting in a very lethargic start to the day for mortgage interest rates. Even though this is only the second 7-year note auction since 1993 – a fact which clouds up the technical picture a bit – I don’t think it would be all that surprising to see a little relief rally in the mortgage-backed securities market exert itself once the Treasury auction concludes at 1:00 p.m. ET.

Today’s macro-economic news was a mixed bag and had no influence on the current trend trajectory of mortgage interest rates.

The government downgraded its final fourth-quarter reading for Gross Domestic Product to -6.3% from the prior estimate of -6.2%. Even though the final revision was less steep than most analysts had anticipated there was no escaping the fact that the economy experienced its most violent contraction in a quarter since 1982.

The one slight bit of silver-lining in this data series came from the inventory measurement component which has fallen so low that it suggests businesses may soon find it necessary to ramp up manufacturing activities to return inventories to more normal levels. At this juncture in the economic cycle the prospects of an inventory rebuild certainly is nothing to write home about – look for it to morph into one of the primary catalysts that rekindles manufacturing activity -- perhaps before the second quarter is over.

To nobody’s surprise labor market conditions continue to deteriorate. The number of workers claiming jobless benefits climbed to a new record of 5.56 million during the week ended March 20th. The number of workers requesting unemployment benefits for the first-time rose by 8,000. Like the earlier Gross Domestic Product figures – this report also contained the slightest bit of silver-lining. The four-week moving average for new claims, considered by many economists to be a better gauge of underlying trends because it irons out week-to-week volatility, fell by 1,000 during the latest reporting. I know it doesn’t sound like much – but at least it stands as the first drop in this series after nine consecutive weeks of increase.

Today’s weekly jobless data didn’t mean a twit to mortgage investors -- but it may be worth at least a casual mention that this report may have contained the tiniest flicker of hope that the worst of the massive round of job destruction this economic cycle has generated may have passed.