Mortgage rates continue to hold below 5% despite some better than expected economic data last week.    As a general rule, better than expected economic data usually leads to higher mortgage rates while worse than expected data improves rates (that has not been the case recently though).  At the close on Friday, the prices of mortgage backed securities were near the highest levels seen since early this summer.   As the price of MBS moves higher, lenders have the opportunity to offer lower mortgage rates to consumers. 

With the exception of a few speeches from Fed officials today, there is no relevant scheduled economic data.  Considering the tier from which today's speakers hail, drastic changes to mortgage rates are unlikely.  But anytime Fed officials speak, market participants pay attention for any hints at future monetary policy and their outlook on future economic conditions, however the impact of such speeches can vary greatly.    Today at 12:30pm, Richmond Federal Reserve Bank President Jeffrey Lacker gave a speech on financial regulation.  At 3:30pm, San Francisco Reserve Bank President Janet Yellen will give a speech on economic outlook and monetary policy.   Matt and AQ will cover any relevant reactions to these speeches on the MBS Commentary blog.   Their blog is rather advanced but provides great insight into what moves mortgage rates.

On Tuesday we receive a couple key reports.  The first being the Producer Price index which measures inflation at the producer level.   Typically, reports on inflation are a major market mover, but not in this market.  Recent data and statements from the Fed suggest inflation is not and is not expected to be a concern for a long time.  The Retail sales report, however, is quite the opposite.  With the burden of "who will lead us out of the recession" shifting from HOUSING to THE CONSUMER, any measure of consumer spending will be closely watched.  Positive results are expected tomorrow, but will perhaps be offset in the eyes of the market due to the isolated impact of the "Cash For Clunkers" program.   How about you, are you spending money or still holding back on spending?

Wednesday brings us another read on inflation with the Consumer Price index.  This report measures inflation at the consumer level while the prior day’s report measures inflation on the producer level.    This report is expected to show a increase in overall prices but the core reading which strips out food and energy is only expected to show a modest 0.1% rise in prices.    We also get a reading on the strength of manufacturing with the release of Industrial Production.  If industries are producing more goods, that should lead to higher sales and higher corporate profits.  The MBS market prefers slower growth which results in less inflationary pressures so they generally improve with a  weaker or slower rate of production.   Last month’s reading on industrial production showed the first positive number for 2009 and economists surveyed expect another positive reading due to the boost provided by the cash for clunkers program. 

Thursday brings us the weekly jobless claims and a read on housing with the Housing Starts report.   Of more importance will be the announcement from the U.S. Department of Treasury of the size of the upcoming auction next week of 2 year, 5 year and 7 year treasury notes.  The added supply of debt on the market will apply pressure on treasury yields and thus mortgage rates, to move higher to attract more buyers, unless the actual amount announced is significantly less than analysts are expecting.  Despite record amounts of government borrowing, demand for our nation’s debt has remained strong which is one of the factors that have helped mortgage rates hold at historic low levels. 

There are no economic reports coming on Friday; however, it is Quadruple Witching day which can create a lot of volatility in the market.   Quadruple Witching day happens four times a year and it is when contracts for stock index futures, stock index options, stock options and single stock futures all expire.  

For more on the week ahead check out the Top News Section of Mortgage News Daily by clicking here.

Reports from fellow mortgage professionals indicate that today’s rate sheets are slightly worse than Friday’s.  The par 30 year conventional rate mortgage moved higher to the  4.875% to 5.125% range for the most qualified consumers.  In order to get a par interest rate 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 one point loan origination/discount/broker fee.   As always, you can elect to pay less in fees and secure a higher interest rate.  This is a good strategy for someone keeping a home for less than 3 years, but if you are planning on keeping your home longer it usually makes sense to pay more in fees to get the lower rate.   Without paying those fees, the homeowner ends up paying much more over the life of the loan with higher interest payments.