Mortgage bond prices fell last week pushing mortgage interest rates higher.  Inflation data remained bond friendly with the Producer Price Index data coming in lower than expected across the board.  Mortgage rates seesawed with stocks.  Severe stock weakness last Monday helped mortgage bonds start the week on a positive note.  Unfortunately, a stock rebound Tuesday erased Monday's gains and this pattern continued throughout the week.  Fortunately, the Fed continued to purchase billions of dollars of mortgage-backed securities in an effort to keep rates relatively low.  Net: For the week, interest rates rose about 1/8 of a discount point.

The Treasury auctions will once again take center stage as they continue to issue record debt.  If signs of foreign demand falter, rates will likely suffer.  Consumer confidence data may also move the market.  Look for stocks to play a role as well.

Durable Goods Orders

Durable goods orders are generally believed to be a precursor of activity in the manufacturing sector because manufacturing must have an order before considering an increase in production.  Conversely, a decrease in orders eventually causes production to be scaled back; otherwise the manufacturer accumulates inventories, which must be financed.

Unfortunately, durable goods orders data has many drawbacks.  The first problem with the orders data is that they are extremely volatile.  The volatility of the data usually is attributed to the civilian aircraft and defense components of the figure. For example, if Boeing has a big order for one of its jumbo jets, the civilian aircraft category can change by $3-4 billion.  The same scenario is evident when an aircraft carrier is ordered, surges in the defense category result.  The second problem with the data is that orders are continuously being revised.  There are many times in the past when the advance report on durables showed an increase while a revision a week later showed a decrease.  The revised data is found in the report on manufacturing orders, shipments, and inventories.  Since the data is very volatile and difficult to forecast, there is quite often a huge disparity between the actual release and the initial projections.  Be cautious heading into this release.

Tags: mortgage interest rates higher, mortgage bond prices, durable goods orders, Producer Price Index , Consumer sentiment, personal income, Treasury Note Auction, consumer confidence, manufacturing, production increase, home buyers, home sellers, inflation, stock weakness, Federal Reserve, ATLShortSales.com