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Wednesday’s bond market has opened in positive territory with stocks
showing early losses. The Dow is currently down 83 points while the Nasdaq
has lost 15 points. The bond market is currently up 7/32, but this is not
enough of an improvement to erase losses from afternoon trading yesterday.
Despite the positive open, we will still likely see an increase of .125 -
.250 of a discount point in this morning’s mortgage rates if comparing to
Tuesday’s morning pricing.
Even with this morning’s gains, the yield on the benchmark 10-year Treasury
Note currently stands at 2.14%. That is a long way from the 1.63% we were
at on May 2nd. Unfortunately, I don’t see it moving back down to that level
anytime in the near future. There is plenty of discussion in the
marketplace that the recent spike is overkill and not justified. While I do
agree with that theory, I also see little in the near future that is likely
to cause yields (and mortgage rates) to reverse course. Unless the major
stock indexes go into selling mode and tank significantly, the next item
that could do this is May’s Employment report on Friday June 7th. There is
some important economic data set for release between now and then, but that
date is what we should be looking forward to for potential relief. And we
don’t want to think about how bad it will be if that report shows stronger
than expected employment numbers.
There is nothing scheduled for release today that is worth watching with
exception to the 5-year Treasury Note auction. These types of sales do not
directly impact mortgage pricing, but they can influence general bond
market sentiment. If the sales go poorly, we could see broader selling in
the bond market that leads to upward revisions in mortgage rates. On the
other hand, strong sales usually makes bonds more attractive to investors
and brings more funds into the bond market. The buying of bonds that
follows usually translates into lower mortgage rates. Tomorrow’s 7-year
Note auction is actually closer in term to mortgage-related bonds, however,
the first of the two gives us an idea of demand levels and often has the
bigger impact than the second. Results will be posted at 1:00 PM ET today
and tomorrow, so look for any reaction to come during afternoon hours.
Tomorrow has some relevant economic data scheduled that may influence bond
trading and mortgage rates. The first is the weekly unemployment update
from the Labor Department at 8:30 AM ET. They are expected to announce that
340,000 new claims for unemployment benefits were filed last week, matching
the previous week’s total. The higher the number of new claims, the better
the news it is for bonds and mortgage rates because rising claims indicates
a weakening employment sector. However, since this is only a weekly report,
it takes a wide variance from forecasts for it to have an impact on
mortgage pricing.
Also early tomorrow morning, the first revision to the 1st quarter Gross
Domestic Product (GDP) will be posted. The second revision to this index
comes next month but isn't expected to carry much importance. The GDP is
the sum of all goods and services that are produced in the U.S. and is
considered to be the best measurement of economic growth. Last month's
preliminary reading revealed a 2.5% increase in the annual rate of growth.
Analysts expect no change in this update. If the revision comes in much
stronger than expected, we may see the bond market react negatively and
mortgage rates move higher because it would mean the economy was stronger
than thought last quarter. A much weaker reading could lead to stock
selling, a bond rally and lower 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... 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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