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Thursday’s bond market has opened in positive territory even though this
morning’s only relevant economic data appeared to be stronger than
expected. The stock markets are flat during early trading with the both the
Dow and Nasdaq up a couple points. The bond market is currently up 11/32,
which should improve this morning’s mortgage rates by approximately .125 of
a discount point.
Yesterday’s 10-year Treasury Note auction actually went extremely well.
Several of the indicators we use to gauge investor demand showed strong
levels of investor interest, leading to strength in bonds yesterday
afternoon. Unfortunately, the improvement erased weakness that took place
between morning rate sheets and the time results were posted at 1:00 PM ET,
preventing many lenders from posting an intra-day downward revision to
rates yesterday. However, it does give us something to be optimistic about
in today’s 30-year Bond auction. If today’s sale also is met with strong
investor demand, we should see afternoon strength in the broader bond
market and possibly a small improvement to mortgage pricing.
The Labor Department gave us this morning’s only relevant economic data
with the release of last week’s unemployment numbers. The headline number
of 292,000 new claims for unemployment benefits was the lowest since 2006
and looked to be troublesome for bonds and mortgage rates because analysts
were expecting to see 327,000 new claims. However, the Labor Day holiday
affected filings (government offices closed) as did a rumor that two states
had technical issues with reporting complete figures. In other words, the
data appears to be flawed and not a true weekly snapshot of the labor
market, so its impact on this morning’s trading has been minimal. That lack
of credibility will also carry into next week when we can expect to see a
spike in initial claims in this week’s numbers because the missing data
will appear in that report.
Tomorrow morning brings us the release of all three of this week’s monthly
economic reports, two of which are considered to be highly important to the
financial and mortgage markets. The first is August's Retail Sales data at
8:30 AM ET. This Commerce Department report will give us a very important
measurement of consumer spending, which is extremely relevant to the
markets because it makes up over two-thirds of the U.S. economy. Current
forecasts are calling for a 0.4% increase in sales. Analysts are also
calling for a 0.3% rise in sales if more volatile auto transactions are
excluded. Larger than expected increases would be considered bad news for
bonds and likely lead to an increase in mortgage pricing since it would
indicate economic growth.
The Labor Department will post August's Producer Price Index (PPI) early
tomorrow morning also, giving us an important measurement of inflationary
pressures at the producer level of the economy. There are two readings that
analysts follow in this release. They are the overall index and the core
data reading. The core data is the more important of the two since it
excludes more volatile food and energy prices. Analysts are predicting a
0.2% increase in the overall index and a rise of 0.1% in the core data.
Stronger than expected readings could fuel inflation concerns in the bond
market. That would be bad news for bonds and mortgage rates because
inflation is the number one nemesis of the bond market as it erodes the
value of a bond's future fixed interest payments. As inflation becomes more
of a concern in the markets, bonds become less appealing to investors,
leading to falling prices, rising yields and higher mortgage rates.
The last release of the week will be posted by the University of Michigan
at 9:55 AM ET. Their Index of Consumer Sentiment will give us an indication
of consumer confidence, which projects consumer willingness to spend. If a
consumer’s confidence in their own financial situation is rising, they are
more apt to make large purchases in the near future. But, if they are
growing more concerned about their job security or finances, they probably
will delay making that large purchase. This influences future consumer
spending data and therefore, impacts the financial markets. It is expected to
show a reading of 82.0 that would mean confidence was nearly unchanged from
August's level of 82.1. That would be considered slightly favorable news
for bonds and mortgage rates. Good news for mortgage shoppers would be a
sizable decline in the index. However, the Retail Sales and PPI releases
will draw the most attention tomorrow morning.
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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