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Thursday’s bond market has opened in negative territory with stocks showing
early strength. The major stock indexes are posting strong gains this
morning with the Dow up 181 points and the Nasdaq up 56 points. The bond
market is currently down 15/32, which will likely push this morning’s
mortgage rates higher by approximately .250 of a discount point.
There was economic data posted this morning and it appeared to show results
that were extremely favorable to the bond market and mortgage rates. Last
week’s unemployment figures were released at 8:30 AM ET this morning,
revealing a sizable jump in new claims for unemployment benefits. They
showed that 374,000 initial claims for benefits were filed last week, up
from 308,000 of the previous week. The headline number was great news for
mortgage rates, but closer review gave other indications. Apparently a very
large portion of that increase is being attributed to corrections in one
state’s reporting that was having difficulties the past several weeks.
Also, approximately a quarter of the increase is related to the government
shutdown that is skewing the numbers. After the one-time or temporary
influences are excluded, we are left with a modest increase in new claims
that isn’t worthy of a significant reaction in the markets.
What is driving this morning’s stock strength and bond weakness is news out
of Washington D.C. that hints at progress in the debt ceiling / default
issue. There are reports that Republicans are considering a short-term
increase in the debt ceiling to prevent a potential default on our debt
October 17th. It is unclear whether that proposal includes strings or
conditions that would pass the Democrat-controlled Senate and make its way
to the White House for signature. But it is at least a sign of some
progress in one of the two critical issues that Congress is dealing with
right now. Simply the glimmer of hope has the stock markets pricing in a
resolution in the immediate future. And that has drawn funds away from
bonds and pushed this morning’s mortgage rates higher.
We also have today’s 30-year Bond auction to be aware of. Yesterday’s
10-year Note sale actually went better than I was expecting it to. By no
means was it a strong auction though. For the most part, the indicators we
use to gauge investor interest in the securities gave us mixed results with
some showing average or slightly above results and others showing weaker
levels of demand. Still, it wasn’t that bad and helps us to remain a little
optimistic about today’s 30-year Bond auction. If investor demand was
strong, we should see afternoon strength in the broader bond market and
possibly a slight improvement to mortgage pricing. On the other hand, a
clear weak level of interest could lead to more weakness in bonds and
mortgage rates. Results will be posted at 1:00 PM ET, so any reaction will
come during early afternoon trading.
Also posted yesterday afternoon was the minutes from the most recent FOMC
meeting. They didn’t give us any significant surprises, but did show some
interesting or informative tidbits. One was that only one voting FOMC
member felt that the economy was strong enough to begin tapering while all
others felt more strength was needed before making such a move. Another was
the fact there was discussion of tapering only purchases in government
securities and continue to buy mortgage-related purchases at the current
pace. That was rumored to be a possibility and would likely soften the blow
to mortgage rates when the Fed does make a move if they decide on this
path. Overall though, there were no major revelations in the minutes.
The week closes tomorrow with another piece of relevant economic data
actually being released. October's preliminary reading to the University of
Michigan's Index of Consumer Sentiment is set to be posted just before
10:00 AM ET tomorrow. This index measures consumer willingness to spend and
usually has a moderate impact on the financial markets. Since economic
releases have been severely limited due to the government shutdown, this
report will probably draw more attention than usual. Rising consumer
confidence indicates consumers feel better about their own financial and
employment situations, meaning they are more apt to make a large purchase
in the near future. Because consumer spending makes up over two-thirds of
the U.S. economy, any related data is watched closely. Good news for the
bond market would be a sizable decline in consumer confidence. It is
expected to show a reading of 74.5, down from September's final reading of
77.5.
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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