Mortgage rates moved in a tight range leading up to the release of the Employment Situation report last week. Friday morning came, the data diasspointed market participants, stocks sold off, a flight to safety ensued and mortgage-backed security prices closed at record highs. This allowed lenders to reprice for the better which  pushed mortgage rates back to the lows of 2010.

A flight to safety occurs when investors are nervous about owning risky assets like stocks, but do not want to miss out on earning a return on their funds so they allocate money into risk-free U.S Treasury debt to provide a safe-haven AND an investment return. To remind readers, as benchmark Treasury yields fall, prices of mortgage-backed securities move higher, which allows lenders to offer lower mortgage rates. As Treasury yields rise, mortgage-backed security prices are led lower, which forces lenders to increase mortgage rates.

The week ahead is fairly light on economic data with our first relevant report coming on Wednesday.  When the economic calendar slows down like it does this week, MBS prices take their direction from the flow of money between stocks and bonds.  If stocks rally, MBS prices will more than likely move lower and mortgage rates will rise. If stocks sell off, mortgage-backed security prices will rally and mortgage rates will improve. 

Here is a look at the week ahead:

Tuesday

• Treasury will auction $36 billion 3 year Treasury notes (low impact).  This is $2 billion less than last auction of new notes which indicates our government needs to borrow less money to fund the deficit. This is a long-term positive for interest rates and the economy.
  

Wednesday

• MBA Mortgage Applications Index (low to medium impact). Normally this data is paid little attention by market participants, however the housing market is under a great deal of scrutiny at the moment because of the expiration of the tax credit.  If housing continues to trend downward, this data release could become a more important blip on the radar of traders.
• Ben Bernanke, chairman of the Federal Reserve, will testify before the U.S. House Budget Committee about economic and financial conditions, and the federal budget. Anytime Mr. Bernanke speaks, his words can have a large impact on the markets.
• Treasury will auction $21 billion 10 year Treasury notes (medium to high impact)
• Beige Book (medium impact), This data outlines economic conditions around the United States and is used as a point of reference during FOMC meets where our nation’s monetary policy is set.
  

Thursday

• International Trade (medium to high impact)  The Trade Balance report measures the monthly difference between what our nation imports and what our nation exports. With the value of the US dollar gaining on global currencies it is becoming more expensive for overseas investors to buy U.S. dollar denominated goods and services. The market will be curious to see how much this imbalance has affected U.S. exports.
  
• Weekly Jobless Claims (medium impact)
• 30 year bond auction totaling $13 billion (medium impact)  

Friday

• Retail Sales (high impact).  This report is the most influential release for the week. 
• Consumer Sentiment (medium impact)

HERE is the full calendar of economic reports and important events in the week ahead

HERE is more discussion on the factors moving the bond market in the week ahead

It was a quiet trading session for most of the day in financial markets. Stocks rallied early in the day and lenders offered slightly worse mortgage rates vs. Friday. However stocks sold off late in the day which led to another FLIGHT TO SAFETY! Benchmark Treasury yields closed at new one year lows and MBS prices closed at new record highs. Lenders repriced for the better and mortgage rates improved vs. loan pricing on Friday afternoon

The par 30 year conventional rate mortgage is now in the 4.500% to 4.875% range for well qualified consumers.  We do have several lenders offering 4.50% as par.  To secure a par rate on a conventional mortgage you must have a FICO credit score of 740 or higher, a loan to value at 80% or less and pay all closing costs including an estimated one point loan origination/discount/broker fee. 

With lenders passing along the best rate sheets of 2010, I still find it hard to pass on mortgage rates at these levels.  The only loans that you should consider floating are ones that are a day or two away from a shorter lock period, which does offer better pricing.