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Thursday’s bond market has opened in positive territory even though this
morning’s economic data was relatively uneventful. The stock markets are
showing fairly sizable gains also with the Dow up 122 points and the Nasdaq
up 28 points. The bond market is currently up 9/32, which should equate to
an improvement of approximately .375 - .500 of a discount point over yesterday’s
morning pricing, partly due to strength in bonds late Wednesday afternoon.
The improvement in bonds and mortgage rates the last two days is
encouraging, however, it is too soon to expect a downward trend in rates.
There seems to be a pretty strong level of support at 2.50% on the
benchmark 10-year Treasury note (currently 2.51%). Until we can fall below
that level, it is advised to remain cautious towards mortgage rates if
still floating.
The Labor Department gave us last week’s unemployment numbers early this
morning, announcing that 346,000 new claims for unemployment benefits were
files last week. This was a decline from the previous week but was very
close to forecasts of 345,000 and indicates that the employment sector
strengthened slightly last week. Therefore, we should consider the data to
be neutral for the bond and mortgage markets.
Also released early this morning was May's Personal Income and Outlays data
that showed income rose 0.5% last month and that spending rose 0.3%. These
were mixed readings because the increase in income was stronger than
expected (0.2%) and the spending reading fell short of the 0.4% that was
forecasted. This means that consumers had more money to spend but actually
spent less than many had thought. So, we can consider the data neutral to
slightly negative simply because the variance on the income reading was
wider than the spending.
Later today we will get the results of today’s 7-year Treasury Note
auction. Yesterday’s 5-year Note sale didn’t go very well with several
indicators that we use to measure investor demand showing lackluster
interest. With 5-year and 7-year Notes so close in term, we shouldn’t have
high expectations that today’s sale will go any differently than
yesterday’s auction did. Generally speaking, strong interest from investors
is good news for the bond market and mortgage rates. Results will be posted
at 1:00 PM ET today, so any reaction will come during early afternoon
trading.
Tomorrow has one report scheduled that is relevant to mortgage rates. It is
considered to be moderately important to the broader markets, but can lead
to a change in rates if it shows much of a surprise. The University of
Michigan will update their Index of Consumer Sentiment for May just before
10:00 AM et tomorrow. This index gives us a measurement of consumer
willingness to spend. If consumers are more comfortable with their own
financial and employment situations, they are more apt to make large
purchases in the near future. Since consumer spending makes up over
two-thirds of the U.S. economy, any related data has the potential to
affect bond trading and mortgage rates. A downward revision would be
considered good news for bonds and rates, but forecasts are calling for
little change from this month's preliminary reading of 82.7.
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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