Thursday’s bond market has opened up slightly following mixed economic news
and a positive open in stocks. The major stock indexes are showing minor
gains with the Dow up 45 points and the Nasdaq up 32 points during early
trading. The bond market is currently up 4/32, but due to heavy selling
late yesterday, we should still see an increase in this morning’s mortgage
rates of approximately .250 of a discount point if comparing to Wednesday’s
early pricing.
Yesterday’s afternoon release of the minutes from the last FOMC meeting did
cause some volatility in the markets and mortgage rates even though they
didn’t reveal anything significant that we didn’t already know. For the
most part, they failed to give us something that would indicate the Fed
would not ease back on their bond purchases (QE3) at their FOMC meeting
next month, leaving traders to believe that it is likely to happen. There
has been so much speculation and discussion on this topic that analysts and
market participants are looking for anything that will make a clearer
picture. And since nobody on the Fed will come right out and announce a
definitive date, everyone is left to continue to speculate.
This is a highly important matter to the mortgage market because the Fed is
currently buying $85 billion in mortgage securities and mortgage-related
bonds each month. Once the Fed does begin to taper their purchases, there
will be less liquidity in the market and it brings the complete ending of
the program in sight. I believe the Fed wants to start that process soon,
but I don’t have confidence in the economic growth that they are using as a
basis to make that move. When it was said that they would start easing QE3
(without a set calendar date), it was based on speculative economic growth
goals that have not clearly been met. It was my interpretation that further
strength in the economy was needed over the summer months for the Fed to
act and that just the current pace of growth from a couple months ago would
not suffice.
The Fed has not come out and said the September meeting is when it will
happen and we have seen some new concerns about the ability of the economy
to strengthen on its own since this issue exploded in May and June.
Therefore, I believe that unless we see overwhelmingly strong numbers in
August’s economic data that will be posted early next month, a significant
move in September would be premature and not likely. What could happen is
that the Fed makes a very small token reduction that would not
significantly impact its stimulus goals but would officially start the
winding down process. They could then leave the slightly reduced rate of
purchases in place for an extended period of time if needed. What all this
speculation will do though, is magnify the importance and influence that
the upcoming economic reports will have on the markets as traders grow
increasingly desperate to predict what the Fed will do, or not do, at their
FOMC meeting September 17-18. Hold on, as it is going to be an interesting
ride.
Today’s economic data failed to show any significant surprises. Both
reports are considered to be only moderately important to the financial and
mortgage markets and neither showed results that varied greatly from
forecasts. The Labor Department announced early this morning that 336,000
new claims for unemployment benefits were filed last week compared to the
337,000 that was expected. Also, the Conference Board said their Leading
Economic Indicators (LEI) for July rose 0.6%, slightly exceeding forecasts
of a 0.5% rise. The initial claims number hints at a softening employment
sector while the LEI is predicting a fairly decent rate of economic growth
over the next couple months. The mixed results from data that is not
considered highly important has had little impact on this morning’s
mortgage rates.
Tomorrow has one piece of economic data that could affect bond trading and
mortgage pricing. That would be July's New Home Sales data from the
Commerce Department at 10:00 AM ET tomorrow. This report is the sister
release to yesterday Existing Home Sales report and will give us another
indication of housing sector strength and mortgage credit demand. However,
since it tracks only a small portion of all home sales, it usually doesn't
have much of an impact on bond prices or mortgage rates unless it varies
greatly from forecasts. Current forecasts are calling for a minor decline
in sales of newly constructed homes from June to July. An unexpected
increase in sales would hint at sector strength, making the data negative
for mortgage rates.
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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