Investors viewed the news from the Fed this week as favorable for mortgage rates. A very light batch of economic data contained no major surprises and had little impact. As a result, mortgage rates ended the week a little lower. Following comments from Fed officials this week, attention has turned to the Feds plans for its enormous bond portfolio. After years of bond purchases to boost the economy, the Fed owns close to two trillion dollars of mortgage-backed securities (MBS). Investors expect that the Fed will continue to steadily taper its purchases of additional bonds, ending the program around the end of the year. At that point, the Feds balance sheet will stop growing. A remaining question is how long the Fed will replace balance sheet runoff (principal payments, prepayments, and maturing securities) to hold the size of its portfolio steady. So far, the Fed has been replacing runoff with new MBS. Prior to this week, the Fed had given little guidance about the timing of future policy changes in this area. This week, Fed officials indicated that they may continue replacing runoff for a long time, possibly even after the first fed funds rate hike. This would mean more MBS purchases by the Fed than had been previously anticipated, which was favorable for mortgage rates. The housing data released this week reflected improvement. April Existing Home Sales posted the first monthly increase this year, while April New Home Sales increased 7% from upwardly revised March figures. One factor holding back the pace of home sales activity over the last few months has been a lack of inventory, and the news on this front was also positive. Total inventory of existing homes available for sale jumped 17% from March to a 5.9-month supply. Next week, elections in Ukraine on Sunday could have an impact on mortgage rates. In addition, Durable Orders will be released on Tuesday. Pending Home Sales will come out on Thursday. Core PCE inflation, Chicago PMI manufacturing, and Personal Income will be released on Friday. Consumer Confidence and Consumer Sentiment will round out the schedule. There will be Treasury auctions on Tuesday, Wednesday, and Thursday.
Posted on: Tue, 27 May 2014 14:07:18 +0000
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