Thursday’s bond market initially opened well in negative territory,
extending yesterday’s massive sell-off, but has since erased a good part
of those losses. The stock markets followed suit with sizable losses of
their own. However, they have not made the same move upward after opening
that bonds have. The Dow is currently down 176 points on top of
yesterday’s 206 point loss. The Nasdaq is down 36 points. The bond market
is currently down 5/32, which is likely going to add another .125 of a
discount point to yesterday’s spike in mortgage rates. The benchmark
10-year Treasury Note is now yielding 2.38%. That is the highest since
August, 2011.
There were three pieces of economic data posted this morning, starting
with last week’s unemployment numbers from the Labor Department at 8:30
AM ET. They announced that 354,000 new claims for unemployment benefits
were filed last week. This was a good sized increase from the previous
week’s revised 336,000 and well above forecasts of 340,000 initial
claims. This indicates that the employment sector was weaker than many
had though last week, making the data favorable for the bond market and
mortgage rates.
At 10:00 AM ET, the National Association of Realtors said that sales of
previously owned homes rose 4.2% last month. This was a bigger increase
in sales than was expected, pointing towards a strengthening housing
sector. Since a strengthening housing sector means broader economic
growth is more likely, we should consider the data negative for mortgage
rates.
May's Leading Economic Indicators (LEI) was also posted at 10:00 AM,
revealing a 0.1% increase compared to the 0.2% that was expected. This
Conference Board release attempts to predict economic activity over the
next three to six months, so we can consider this favorable for the bond
market and mortgage pricing. However, it is a minor variance in a
moderately important report, so its impact on today’s trading has been
minimal.
There is nothing of relevance to mortgage rates scheduled for release
tomorrow, so normally we would look towards stocks to give bond trading
and mortgage rate direction. However, that traditional trading pattern
(bad for stocks is good for bonds) has not been the case the past couple
days. This leaves us little to base predictions on, but I suspect it will
be a much calmer day than yesterday or today. The light agenda will allow
us to address the end result of the Fed’s actions and what to look
forward to in the immediate future. Also, even though yesterday’s spike
in bond yields and mortgage rates caught everyone in the industry by
surprise, the overwhelming consensus is that the move was a drastic
overreaction. This means there is a good possibility of seeing some correction
in the immediate future. The possibility of seeing the 10-year Treasury
Note yield below 2.00% in the next month or two is extremely low. On the
other hand, I believe there is room for improvement in mortgage pricing
within the next couple business days with little risk of seeing another
significant upward move. Therefore, since the damage is done and the
worst appears to be behind us, I am maintaining an optimistic stance
towards mortgage rates for the near term. At least for the time being
that is.
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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