Concerns about the pace of global economic growth and continued violence in the Middle East helped mortgage rates improve this week. Very strong demand for this week's longer-term Treasury auctions was also favorable. As a result, mortgage rates moved lower during the week.
The fighting in Libya continued this week, and violence spread to Saudi Arabia. Geopolitical tensions generally benefit bonds as investors seek out relatively safer assets. Unrest in oil-producing nations has the added impact of pushing oil prices higher. When consumers and businesses must spend more for energy, they have less money to spend on other items. This slows economic growth and can reduce expectations for future inflation, allowing investors to accept lower yields.
Extremely strong demand for this week's 10-year and 30-year Treasury auctions reinforced the view that many investors are seeking to reduce the risk in their portfolios. Despite budget deficit concerns, US government-guaranteed securities remain one of the primary "safe" assets for global investors. Demand for the longer-term auctions was well above average from both foreign and domestic investors. Increased demand drives bond prices higher and yields lower.
- Also Notable:
- February Retail Sales rose 1.0% from January
- Moody's downgraded Spain's sovereign debt rating
- Oil prices remained above $100 per barrel
- The Dow stock index dropped below the 12,000 level
The biggest economic event next week will be Tuesday's FOMC meeting. Investors will be looking for an update on the Fed's plans for the quantitative easing program. The most significant economic data next week will be the monthly inflation reports. The Producer Price Index (PPI) focuses on the increase in prices of "intermediate" goods used by companies to produce finished products and will come out on Wednesday. The Consumer Price Index (CPI), the most closely watched monthly inflation report, will come out on Thursday. CPI looks at the price change for those finished goods which are sold to consumers. In addition, Industrial Production, an important indicator of economic growth, is scheduled for Thursday. Housing Starts will be released on Wednesday. Import Prices, Empire State, Leading Indicators, and Philly Fed will round out a busy week.
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