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Tuesday’s bond market has opened up slightly even though stocks are
showing early strength. The major stock indexes are showing noticeable
gains with the Dow up 81 points and the Nasdaq up 24 points. The bond
market is currently up 3/32, which should improve this morning’s mortgage
rates by approximately .125 of a discount point.
We have a seen a sizable increase in bond yields over the past two weeks,
with the benchmark 10-year Treasury Note moving from 1.63% at the
beginning of this month to 1.91% this morning. Since mortgage rates tend
to follow bond yields, this means we have seen a spike in interest rates
also. Hopefully the lock advice has been heeded during the past couple weeks.
At 1.91%, I think there is still a little room for yields and mortgage
rates to move higher, but the risk is diminishing in my opinion. I still
look at 2.00% as an important threshold for the 10-year, so as long as we
gradually move higher and not quickly jump above that level, I may take a
less conservative stance towards locking or floating a rate in the near
future.
There was nothing of importance posted this morning. April's Producer
Price Index (PPI) will be released at 8:30 AM ET tomorrow. The PPI helps
us measure inflationary pressures at the producer level of the economy.
If this report reveals weaker than expected readings, indicating
inflation is not a concern at the producer level, we should see the bond
market improve tomorrow. The overall index is expected to fall 0.5%,
while the core data that excludes more volatile food and energy prices
has been forecasted to rise 0.1%. A decline in the core data would be
ideal for mortgage shoppers because inflation is the number one nemesis
for long-term securities such as mortgage-related bonds. As inflation
rises, longer-term securities become less appealing to investors since
inflation erodes the value of those securities’ future fixed interest
payment. That is why the bond market tends to thrive in weaker economic
conditions with low levels of inflation.
The second report of the day will be April's Industrial Production at
9:15 AM ET tomorrow. It measures manufacturing sector strength by
tracking output at U.S. factories, mines and utilities. It is expected to
show a 0.2% decline in production, indicating that manufacturing activity
is growing. A larger than expected decrease in output would be good news
for the bond market and mortgage rates because it would indicate that the
manufacturing sector is not as strong as thought. This report is
considered to be moderately important, so it will likely need to show
unexpected strength or weakness to cause movement in mortgage rates. The
PPI report will probably be the biggest influence on bond trading and mortgage
rates tomorrow.
If I were considering financing/refinancing a home, I would.... Lock if
my closing was taking place within 7 days... Lock if my closing was
taking place between 8 and 20 days... Lock if my closing was taking place
between 21 and 60 days... Float if my closing was taking place over 60
days from now...
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