WEEKLY ECONOMIC SUMMARY COURTESY OF BAND OF AMERICA

Housing Starts came in better than expected, while both the New York Empire State Index and the Philadelphia Fed Index reported positive manufacturing news. The Weekly Initial Jobless Claims fell by 13,000 in the latest week to 348,000 — the lowest level since March 2008. Meanwhile, Retail Sales rose in January by 0.4%, the largest gain since October.

Remember, strong economic news often causes money to flow out of bonds and into stocks, as investors hope to take advantage of gains. That’s partly what caused bonds (including mortgage bonds, to which home loan rates are tied) to worsen late last week.

Also weighing on bonds and home loan rates was the news that inflation is heating up. Despite the Fed’s claim that inflation is moderating, the Core Consumer Price Index (CPI), which excludes high volatility items such as food and energy, rose to its highest levels since October 2008. The Core Producer Price Index (PPI), which is an indicator for wholesale inflation, rose double the expectations of 0.2%, coming in at 0.4%.

Last week’s uncertainty in Greece was another key factor, as it also impacted bonds and home loan rates. Eurozone finance ministers completed a deal early this week that will provide Greece with the funding it needs to avoid default next month. U.S. bonds and home loan rates have benefitted from all the uncertainty in Greece, as investors have seen our bond market as a safe haven for their money. While Greece’s uncertainty seems to have resolved, time will tell whether this safe haven trading will continue in the face of other European countries’ economic uncertainty.

Mortgage Backed Securities Chart

The chart below shows Mortgage Backed Securities (MBS), which are the type of bond that home loan rates are based on. A red “candle” means that MBS worsened during the day, while a green “candle” means MBS improved during the day. When the MBS prices move higher, it means home loan rates are improving. Depending on how dramatic the changes were on any given day, this can cause rate changes throughout the day.

The positive economic news late last week reversed the improving trend bonds and home loan rates experienced early in the week.