Tuesday’s bond market has opened in positive territory despite stronger than expected economic news, extending yesterday afternoon’s sizable rally that resulted from Italy’s election news. The stock markets are showing relatively sizable gains, rebounding from yesterday’s 216 point loss in the Dow and 45 point drop in the Nasdaq. The Dow is currently up 71 points, still almost 150 points away from 14,000 while the Nasdaq is up 2 points. The bond market is currently up 5/32, which with yesterday’s late strength should improve this morning’s mortgage rates by approximately .375 - .500 of a discount point over Monday’s morning pricing.
There were two pieces of economic data posted this morning that are relevant to mortgage rates. The first was January’s New Home Sales report at 10:00 AM ET. The Commerce Department reported that sales of newly constructed homes rose 15.6% last month, greatly exceeding forecasts. This means that the new home portion of the housing sector was strong last month, making the data negative for the bond market and mortgage rates. Fortunately, the data does not carry enough significance to offset the day’s other news.
February's Consumer Confidence Index (CCI) was also posted late this morning with the Conference Board announcing a reading of 69.0. This also exceeded forecasts by a wide margin, indicating consumers were much more optimistic about their own financial situations than many had thought. Therefore, we should consider the data bad news for the bond market because rising confidence usually means consumers are willing to spend more in the near future.
The biggest news of the morning came from Fed Chairman Bernanke’s semi-annual congressional testimony. He is speaking to the Senate Banking Committee this morning about the status of the economy, the Fed’s monetary policy and the impact the pending budget cuts would have on our economic growth. He hasn’t said anything surprising yet and what has been said has been neutral or favorable for bonds and mortgage rates. He reassured committee members that the Fed’s bond buying program has clearly helped the economy and that the longer-term concerns of such a program remained minimal. The latter helps support the theory that the Fed may not end or reduce their stimulus program earlier than previously predicted. He was also quite blunt in warning that the upcoming budget cuts that are scheduled to go into effect Friday would create a "significant headwind" for the economy.
Overall, this morning’s economic data was not favorable for the bond and mortgage markets, but Chairman Bernanke’s calming words appear to have eased some concerns and prevented the data from negatively affecting mortgage rates. I would not be completely surprised to see the markets make another move this afternoon, possibly leading to another improvement to mortgage rates. Accordingly, I am holding current recommendations, but there is a decent chance of shifting to a slightly more conservative stance on the topic of locking or floating an interest rate in the immediate future- possibly as early as tomorrow.
Early this afternoon, we will get the results of today’s 5-year Treasury Note auction. If the sale was met with weak investor interest, we could see broader selling in the bond market that leads to upward revisions to mortgage rates later today. However, strong sales usually make bonds more attractive to investors and bring more funds into the bond market. The buying of bonds that follows often translates into lower mortgage rates. The results will be posted at 1:00 PM ET, so any reaction will come during afternoon trading.
January's Durable Goods Orders data will be released early tomorrow morning. This report gives us an important measurement of manufacturing sector strength by tracking orders at U.S. factories for items expected to last three or more years. Products such as electronics, refrigerators and autos are examples of these big-ticket items. A larger decline than the 3.5% that is currently expected would be good news for the bond market and mortgage rates as it would point towards manufacturing sector weakness. This data is known to be quite volatile from month-to-month, so large swings are fairly normal. A small variance from forecasts would not cause much concern or joy in the markets.
Also tomorrow is day two of Chairman Bernanke’s testimony and the second Treasury auction that has the potential to influence bond trading and mortgage pricing. Chairman Bernanke will be speaking to the House Financial Services Committee tomorrow. His prepared statement should be nearly identical to this morning’s, so it likely will not cause much movement in the markets. Anything unexpected or surprising would likely come from the Q&A portion of the proceedings. And the results of the 7-year Note auction will be posted at 1:00 PM ET tomorrow, so it won’t affect bond trading until early afternoon.
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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