Will Mortgage Rates Rise in August?
Every week it seems mortgage rates inch down – but is the ride nearing the end?
One of the main reasons why mortgage rates have been so low is due to the Quantitative Easing II program.  This is where the Federal Reserve Bank of New York purchases U.S. Treasury debt each business day.  This massive program will end at the end of June and has kept the demand for U.S. treasuries higher than it would normally be and as a result has kept all interest rates lower than normal.  So what will happen to demand for treasuries once the largest single buyer of our debt leaves the market?
U.S. banks have also been a very large purchaser of treasuries but some of Wall Street’s biggest banks are preparing to cut their use of U.S. treasuries in August as a precaution against any turbulence that could follow if warring Republicans and Democrats fail to increase the U.S. debt ceiling, a senior bank chief said.
One strategy, which bank executives only agreed to discuss without attribution due to the political sensitivities related to discussing Treasury debt, is to have more cash on hand to put up as collateral against derivatives and other transactions, decreasing the financial system’s reliance on treasuries.
“We’re planning to lower our reliance on the use of treasuries in early August and have more cash on hand as a contingency measure,” said a U.S. bank chief.
Investors worldwide own large amounts of the $9.7 trillion of debt that has been sold by the US government as part of their portfolios. But nearly 40 per cent of the existing U.S. Treasury debt – about $4 trillion – is used to back deals in the repurchase, futures and swaps markets, say JPMorgan Chase estimates.
It is this key role that treasuries play as collateral for the wider financial system where turmoil could follow any missed payment resulting from the debt ceiling fight. The top quality and liquidity of Treasury debt means it can be used to back transactions relatively cheaply, with banks or clearing houses only requiring a small “haircut” or discount on the value of the debt to reflect credit risks.
Without the Federal Reserve buying treasuries and with banks curbing their purchases as well – it could lead to higher rates.
What Happened to Rates Last Week:
Mortgage backed securities (MBS) lost -19 basis points last week which caused 30 year fixed rates to rise for the first time in three weeks.
Mortgage backed securities rose (mortgage rates got lower) on Tuesday and Wednesday on the back of some very strong demand for the 3 year and 10 year U.S. Treasury auctions.  But mortgage backed securities reversed course and mortgage rates began to rise Thursday afternoon after the weaker than expected 30 year U.S. Treasury bond auction results were released.
What to Watch Out For This Week:
The following are the major economic reports that will hit the market this week.  They each have the ability to affect the pricing of Mortgage Backed Securities and therefore, interest rates for Government and Conventional mortgages.  I will be watching these reports closely for you and let you know if there are any big surprises:

Date EST Economic Report
14-Jun 8:30 Producer Price Index (MoM)
14-Jun 8:30 Producer Price Index (YoY)
14-Jun 8:30 PPI Ex Energy (MoM)
14-Jun 8:30 PPI Ex Enery (YoY)
14-Jun 8:30 Retail Sales (MoM)
14-Jun 8:30 Retail Sales ex Autos (MoM)
14-Jun 10:00 Business Inventories
15-Jun 7:00 MBA Mortgage Applications
15-Jun 8:30 Consumer Price Index (MoM)
15-Jun 8:30 Consumer Price Index (YoY)
15-Jun 8:30 CPI Ex Energy (MoM)
15-Jun 8:30 CPI Ex Enery (YoY)
15-Jun 8:30 NY Empire Mfg Index
15-Jun 9:00 Net Long-Term TIC Flows
15-Jun 9:00 Total Net TIC Flows
15-Jun 9:15 Capacity Utilization
15-Jun 9:15 Industrial Production (MoM)
15-Jun 10:00 NAHB Housing Market Index
15-Jun 10:30 EIA Crude Oil Stocks change
16-Jun 8:30 Building Permits (MoM)
16-Jun 8:30 Continuing Jobless Claims
16-Jun 8:30 Current Account
16-Jun 8:30 Housing Starts (MoM)
16-Jun 8:30 Initial Jobless Claims
16-Jun 10:00 Philly Fed Mfg Survey
17-Jun 9:55 U of M Cons. Sent. Index
17-Jun 10:00 Leading Indicators (MoM)

It is virtually impossible for you to keep track of what is going on with the economy and other events that can impact the housing and mortgage markets.  Just leave it to me, I monitor the live trading of Mortgage Backed Securities which are the only thing government and conventional mortgage rates are based upon.