There was a lot of daily volatility for mortgage rates this week. On Tuesday, the Fed Minutes revealed a lack of enthusiasm for further easing, and this caused mortgage rates to jump. Increased concerns about Europe then helped mortgage rates improve on Wednesday and Thursday. The net result was a small increase in rates for the week.

Shifting expectations for future Fed policy has had a large influence on MBS prices lately, and that was certainly true on Tuesday. The Minutes from the March 13 Fed meeting caused investors to lower their expectations for additional quantitative easing (QE3). The Minutes suggested that most Fed officials would support QE3 only if the economy performs much more poorly than expected. Under another round of quantitative easing, the Fed would purchase mortgage-backed securities (MBS), and the potential for added demand from the Fed makes MBS more appealing. So, when the perceived likelihood for QE3 decreases, investors sell MBS, and lower MBS prices lead to higher mortgage rates.

By contrast, increased concerns about Europe caused investors to shift funds into safer assets such as MBS, which was favorable for mortgage rates. Investors viewed weaker than expected economic growth data and rising bond yields in troubled countries such as Spain as indications that financial conditions in Europe may be getting worse. Slower economic growth tends to reduce future inflationary pressures, which also benefits mortgage rates.

Mortgage markets will close early at 12:00 et tomorrow in observance of Good Friday. The important Employment report will come out tomorrow. As usual, this data on the number of jobs, the Unemployment Rate, and wage inflation will be the most highly anticipated economic data of the month. Next week, Import Prices and the Fed’s Beige Book will be released on Wednesday. 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 Thursday. The Consumer Price Index (CPI), the most closely watched monthly inflation report, will come out on Friday. CPI looks at the price change for those finished goods which are sold to consumers. In addition, there will be Treasury auctions on Tuesday, Wednesday, and Thursday.

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