Credit market investors are breathing a huge sigh of relief now that Uncle Sam has wrapped up his $84 billion, four-part auction and is not expected to be back in the credit markets for a couple of more weeks.
Today's rally in the mortgage market is also being supported by news from the Labor Department that inflation pressures at the consumer level remain benign. The headline Consumer Price Index rose 0.1% last month from November as food and energy costs gained only modestly and housing-related expenses held steady. Stripping out the more volatile food and energy prices, the Labor Department said the core rate of the consumer price index edged up 0.1% in December after being flat the prior month. Compared with December 2008, the core inflation rate rose 1.8% -- well within the Fed's stated tolerance level of 2.0%. Fed Chairman Bernanke and his fellow central bankers are likely walking around Washington with a look of relief on their faces - since there is certainly nothing in today's inflation data to suggest an imminent change to their current monetary policy is necessary - and that's a good thing for the prospects for steady to perhaps fractionally lower mortgage interest rates ahead.
Considering all of the cross-currents created by this week's very active schedule of government debt auctions - mortgage interest weathered the storm rather well. According to Freddie Mac, the rate for 30-year fixed home loans dropped to 5.06% for the week (ended yesterday) from 5.09% the prior week.
Looking ahead to the upcoming holiday shortened week the economic calendar offers the December Producer Price Index figures and December Housing Starts and Building Permit stats on Wednesday together with the standard weekly initial jobless claims data on Thursday. The consensus estimate for all three reports calls for their respective values to fall within mortgage market neutral ranges.
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