Mortgage bond prices rose last week pushing mortgage interest rates lower. Stronger than expected producer price index data was overlooked as oil prices remained lower the beginning of the week which eased inflation fears. Unfortunately oil prices spiked higher towards the end of the week with a $6/barrel swing on Thursday alone. Traders were concerned about international political tensions with Russia.

For the week, interest rates on government and conventional loans fell by about 1/8 of a discount point.

The preliminary gross domestic product data Thursday will be the most important event this week. The bond market closes early Friday in advance of the Labor Day Holiday. The shortened trading week may lead to market volatility.

Fed Minutes

The Federal Open Market Committee decided in December of 2004 to reduce the lag time between the open market committee meeting and the release of the minutes from six to eight weeks to only three weeks. The minutes from the meeting have the ability to cause mortgage interest rate volatility because they provide more policy details than the standard post meeting release. Most importantly the minutes provide the Fed's complete economic analysis and the various opinions of individual Fed members. There is typically an overwhelming consensus among the members. However, there can also be dissension, which often causes uneasiness in the financial markets. The release often comes and goes without much uproar but keep in mind that if any of the text seems troubling to analysts you can see market volatility.

Remember that mortgage interest rates remaining historically favorable. Capitalizing on current levels is wise amid the recent geopolitical instability across the globe. Inflation fears could be stoked if Russia reduces the flow of oil in Eastern Europe. Inflation, real or perceived, generally does not bode well for mortgage bonds and could cause rates to rise.