Tuesday’s bond market has opened in negative territory following mixed
economic news and a positive open in stocks. The stock markets are showing
moderate gains during early trading with the Dow up 77 points and the
Nasdaq up 21 points. The bond market is currently down 7/32, which would
have pushed this morning’s mortgage rates higher by approximately .125 of a
discount point. However, afternoon weakness in bonds yesterday caused many
lenders to revise their rates higher by approximately .250 of a discount
point. This means that this morning’s pricing will likely be in the range
of .250 - .375 of a discount point higher than yesterday’s morning rates.
The Labor Department gave us one of this morning’s two economic reports.
They announced that May's Consumer Price Index (CPI) rose 0.1% and the core
data rose 0.2%. The overall reading was slightly below forecasts but the
core data was slightly higher than what was expected (0.2% and 0.1%). The
weaker overall reading means inflationary pressures were just a bit
stronger at the consumer level of the economy than many had thought, making
that good news for bonds. Unfortunately, the core reading is more important
to analysts because it excludes more volatile food and energy prices. With
it coming in higher than expected, we should consider the report neutral to
slightly negative for bonds and mortgage pricing. Although, the data does
indicate inflation remained subdued last month and is not currently a
threat to the overall economy.
May’s Housing Starts was also posted this morning, revealing a 6.8%
increase in the number of new housing construction projects that broke
ground. That is a sign of housing sector growth, but the increase was well
below the 11% jump that analysts were expecting to see. In other words, the
report does indicate growth in the housing sector, but at a much slower
pace than analysts were thinking. So, we can consider the data fairly
favorable for mortgage rates.
Yesterday’s afternoon weakness in bonds and pressure on mortgage rates has
become all too familiar. It seems that even if we get really good news that
causes morning strength in bonds, it is lost to afternoon selling and
intra-day revisions to mortgage rates. What made yesterday particularly
frustrating was the fact that bonds weakened as stock fell from their highs
of the day, which is opposite of what we would expect to see. Generally
speaking, this afternoon selling days are nearly impossible to predict
because there is no cause or logic to foresee. It is relatively common to
see afternoon movement in bond trading and mortgage rates, however, under
normal circumstances the revisions are sometimes upward and sometimes they
lead to lower mortgage rates. Unfortunately, we are seeing many, many more
days of afternoon weakness and higher mortgage pricing recently than
improvements. With the major events on tomorrow’s calendar, there is no
reason to believe we will be sheltered from a repeat performance this
afternoon also.
Tomorrow has no important economic data scheduled for release, but we do
have three Fed events that are likely to cause plenty of volatility in the
financial and mortgage markets. The first is the 12:30 PM adjournment of
the FOMC meeting that actually started today. It is widely expected that
Mr. Bernanke and company will not change key short-term interest rates at
this meeting, but there is a great deal of speculation that they will
address or clarify their intentions on tapering their current bond-buying
program (QE3). The post-meeting statement may or may not answer some of the
questions that analysts and traders have. If it does, look for an immediate
reaction in the financial and mortgage markets.
At 2:00 PM ET tomorrow, the Fed will release their updated estimates for
future economic growth. They will likely post their predictions on GDP
growth, unemployment and inflation. These could be a market mover if they
show even minor revisions to any of the key headline economic numbers. The
larger the change, the more likely the markets will react. Revisions that
point toward slower economic growth would be good news for the bond market
and mortgage rates.
The FOMC meeting is ending earlier than the traditional 2:15 PM because it
is one of them that will be followed by a press conference hosted by Fed
Chairman Bernanke. The meeting will adjourn at 12:30 PM while the press
conference will begin at 2:15 PM and will probably lead to significant
afternoon volatility in the markets and mortgage rates. The key topics will
probably be unemployment, QE3 and what change the Fed expects to make and
when it will likely happen. There is a very high likelihood of seeing a
great deal of volatility in the markets and also mortgage rates tomorrow
afternoon. Therefore, please proceed cautiously if floating an interest
rate.
If I were considering financing/refinancing a home, I would.... Lock if my
closing was taking place within 7 days... Float if my closing was taking
place between 8 and 20 days... Float 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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