Market Recap - Week Ending November 05, 2010

As expected, a week packed with major economic events produced a great deal of daily volatility in mortgage rates. The Fed's announcement was positive for mortgage rates, the Employment report was negative, and the election results were neutral. In the end, mortgage rates finished the week a little lower.

On Wednesday, the Fed announced that it will purchase an additional $600 billion in Treasury securities by the end of the second quarter of 2011 to boost the economy. The Fed expects to purchase about $75 billion per month to reach this target. This fell near the middle of the wide range of investor forecasts. The Fed will regularly review both the pace of the purchases and the overall size of the program. Added demand for Treasury securities generally benefits other bonds as well, including mortgage-backed securities (MBS), and expectations for this plan have helped lower mortgage rates over the last couple of months. Prior to the announcement, there was so much uncertainty surrounding the program that mortgage rates improved a little further when the details contained no major surprises.

Mortgage rates rose on Friday when the Employment report came in stronger than expected. Against a consensus forecast for a gain of 60K jobs, the economy added 151K jobs in October. Private employers hired 159K workers, the highest level since April. Revisions from prior months added an additional 103K private sector jobs. As expected, the Unemployment Rate remained at 9.6%. Average hourly earning, a proxy for wage growth, rose 0.2% from September. Stronger than expected economic data raises future inflation expectations, which pushed mortgage rates higher after the report.

Next week will be a very light week for economic data. The Trade Balance and Import Prices, which generally are not market moving reports, will be released on Wednesday. Consumer Sentiment will come out on Friday. There will be Treasury auctions on Monday, Tuesday, and Wednesday. These will be the first auctions since the Fed's announcement about quantitative easing, and the results may produce a significant reaction. Mortgage markets will be closed on Thursday for Veterans Day, while the stock market will not close.

Market Recap - Week Ending November 05, 2010