WEEK OF SEPTEMBER 6 - 10, 2010

Analysts, economist and other market participants will spend a large part of this holiday shortened week hotly debating whether mortgage interest rates established their long-term lows on the last day of August – or whether the mortgage market simply succumbed to a round of pre-holiday profit-taking that will soon fade -- and allow mortgage rates to move to fresh new all-time record lows.


Many mortgage investors remain generally unconvinced mortgage interest rates are destined for a strong move to higher levels -- only because there is nothing in the way of conclusive data to suggest the economy is shifting gears into a higher pace of overall growth. As you can plainly see below, there is nothing on this week’s economic calendar that will do much to clarify whether or not the economic porridge has become too warm to support lower mortgage rates. Until more meaningful economic data becomes available it is highly likely mortgage investors will look to trading activity in stock markets as a guide to determine interest rate levels.


From a technical perspective it appears the aggressive short-term rally in the Dow that began on Tuesday, August 31st will likely run out of momentum on or about Wednesday, September 8th somewhere in a price range between 10500 and 10550. If this assessment proves accurate, the sell-off in the stock that will follow will likely prove supportive of the short-term prospects for steady to perhaps fractionally lower mortgage interest rates. Play it by the numbers.

Now - to this week's activity in the market:


Mon. Sept. 6 The mortgage market is closed for the Labor Day Holiday


Tues. Sept. 7, 1:00 p.m. ET
Treasury sells $34 billion of 3-year notes The relatively short duration of these notes should draw strong participation levels from domestic as well as foreign investors. If so, this event will likely prove to be supportive of steady to perhaps fractionally lower mortgage interest rates.


Wed, Sept. 8, 1:00 p.m. ET
Treasury sells $24 billion of 10-year notes This auction will likely draw decent demand from buyers as technical indicators are flashing an increasing number of signs that a short-term price bottom may be near. If my assessment proves accurate, this event will tend to be supportive of steady to perhaps fractionally lower mortgage rates.


Wed. Sept. 8, 2:00 p.m. ET
Fed releases Beige Book This report, named for the color of its cover, is a compilation of economic data from all 12 Federal Reserve districts. The tone of these collected assessments will likely be more pessimistic than in prior periods as a noticeable slowdown in manufacturing activity grips large parts of the country. The chance any of the data in this report will surprise investors is small. Look for this data to be essentially "toothless" with respect to its impact on the trend trajectory of mortgage interest rates.


Thurs. Sept. 9, 8:30 a.m. ET
Initial jobless claims for the week ended 9/4 Down 2,000 to 470,000 Until the total number of initial jobless claims falls below 400,000 on a week-over-week basis -- this data will tend to support steady mortgage interest rates.

Thurs. Sept. 9, 1:00 p.m. ET
Treasury sells $16 billion of 30-year bonds The yield of this security has risen to a level (3.792%) that will likely draw strong demand from both domestic and global investors. If so, this event will tend to be supportive of the prospects for steady to perhaps fractionally lower mortgage interest rates.


Fri. Sept. 10, 10:00 a.m. ET
July Wholesale Inventories +0.4% vs. last +0.1% This old stale bit of macro-economic news will likely do nothing more than take up space on this week’s calendar.

Fri. Sept. 10
Before the close Most 30-year mortgage-backed securities "roll" to Oct. delivery This is nothing more than a standard monthly administrative function of the mortgage-backed securities market. The roughly 31.25 basis-point price reduction associated with this event in the mortgage-backed security market has already been factored into most of your investors’ rate sheets.