Thursday, September 24, 2009

The economic news of the day drew little more than a passing glance from mortgage investors.
Sales of existing homes unexpectedly fell 2.7% during the month of August. Most analysts had anticipated this metric of activity in the housing sector would post a gain of 2.1% or so. July's sales performance was much stronger than expected -- so even with this month's slight retreat - the pace of August sales was second-highest in 23 months. At least 30% of the August existing home sales gain was directly attributable to the $8,000 tax-credit the government offered first-time home buyers. That program will expire at the end of November - and unless it is extended and/or expanded - mortgage investors see a strong probability that existing home sales will likely experience a marked slow-down before the year is out.


In a separate report, the Labor Department reported that the number of workers filing first-time claims for unemployment benefits fell a surprising 21,000 last week. The number of people still on jobless aid after receiving an initial week of benefits fell by a larger-than-expected 123,000. Part of this decline was likely a result of some workers exhausting their 26 weeks of benefits and falling out of the survey group. The share of unemployed people without a job for at least 27 weeks was 33.3% in August - down from 33.8% in July - but still the most since record keeping began in 1948. In attempt to alleviate some of the strain the House of Representatives voted this week to extend jobless benefits for an additional 13 weeks in states hardest hit by the recession.


Mortgage investors shrugged off this economic data - choosing instead to rely on strong buying from the Fed in the mortgage-backed securities market to provide major support for rates at, or near current levels for a while longer.


Uncle Sam will wrap-up his three-part auction schedule for the week with the sale of $29 million of 7-year notes today. The auction will conclude at 1:00 p.m. ET. Yesterday's 5-year note auction was a bit wobbly - with the yield on the 5-year note creeping a higher than most participants had anticipated. There is a good chance investors were hesitant to buy yesterday's offering aggressively just before the Fed released it latest policy statement -- for fear of getting caught by a surprising twist of strategy from central bankers. As it turned out the Fed did nothing to undermine expectations that they intend to keep their benchmark rates near zero for an extended period of time due to an outlook for subdued inflation pressures and slow economic growth. The seven-year note auction will likely draw solid demand from domestic and foreign investors alike. If so, this event will essentially be "toothless" with respect to its impact on the current trend trajectory of mortgage interest rates.