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Thursday’s bond market has opened well in positive territory, erasing
losses from afternoon selling yesterday. The stock markets are showing
fairly sizable gains with the Dow up 112 points and the Nasdaq up 33
points. The bond market is currently up 22/32, but due to weakness late
yesterday we will probably only see an improvement in this morning’s
mortgage rates of approximately .125 - .250 of a discount point if
comparing to Wednesday’s morning pricing.
This morning’s bond strength is more a result of events late yesterday than
it is of this morning’s economic data. Yesterday afternoon had three events
that influenced bond trading and mortgage rates. As we headed into closing
Wednesday, it appeared that the reaction was negative and many lenders
revised pricing higher. However, as the markets closed and Fed Chairman
Bernanke spoke at his scheduled engagement, the tone changed direction and
it carried into overnight trading.
Yesterday’s 10-year Treasury Note auction didn’t go overly well or
noticeably weak. More or less it was an average auction with some
indicators pointing towards a decent level of investor interest and others
contradicting that. Still, that gives us hope that today’s 30-year Bond
auction will not go as bad as some had feared earlier in the week. If
investor interest in the sale is high, we should see afternoon strength in
bonds that lead to a slight improvement to mortgage rates. On the other
hand, a lackluster demand could lead to higher rates later today. Results
will be posted at 1:00 PM ET, so any reaction will come during early
afternoon hours.
The second item yesterday afternoon was the 2:00 PM ET release of the
minutes from the last FOMC meeting. They didn’t give us anything too
significant that we didn’t already know. However, there were a couple of
tidbits that drew some attention and initially led to weakness in bonds.
The most glaring was that apparently nearly half of the FOMC members wish
to completely end the Fed’s bond buying program (QE3) by the end of this
year. At first glance that put the timetable ahead of the mid-2014 that was
referenced in the post-FOMC meeting press conference last month. However,
they also indicated further economic growth was needed to support any
tapering of the program. In other words, the tapering is based on
speculation of further economic growth, which actually isn’t really a
surprise. The bottom line is that we didn’t learn anything that we weren’t
already told last month, with exception to the growing number of members
that preferred to end the program this year.
The final and most beneficial event was Fed Chairman Bernanke’s speech in
Boston. His prepared words didn’t cause much of a reaction, but during the
Q&A portion of the event he reiterated that the U.S. economy still
needs assistance and is benefiting from the Fed’s low interest rates and
stimulus. This wasn’t anything surprising, however, just hearing him say it
eased some concerns in the markets and helped boost bond prices during
overnight and morning trading.
This morning’s only economic news gave us favorable results although the
markets have not moved much since the release. The Labor Department
announced early this morning that 360,000 new claims for unemployment
benefits were filed last week. This was well above expectations of 345,000
and the previous week’s revised total of 344,000 initial claims. That
indicates that the employment sector softened last week, making the data
good news for the bond market and mortgage rates.
Tomorrow morning has two pieces of relevant economic data scheduled for
release. The first is June's Producer Price Index (PPI) from the Labor
Department at 8:30 AM ET. It is a very important release because it
measures inflationary pressures at the producer level of the economy. It is
expected to show a 0.3% increase in the overall reading and a 0.1% increase
in the core data reading. The core reading is the more important of the two
because it excludes more volatile food and energy prices, revealing a more
reliable inflation reading. The bond market should react favorably if we
get weaker than expected readings, but a larger than expected rise in the
core reading could send mortgage rates higher.
The final report of the week is the University of Michigan's Index of
Consumer Sentiment. This index is released in a preliminary form each month
and then followed up two weeks later with a final reading. The preliminary
reading for July will be posted just before 10:00 AM ET tomorrow and is
expected to rise from June's final reading of 84.1 to 85.0. This would
indicate that consumers were a little more comfortable with their own
financial situations this month than last month. It is believed that if
consumers are confident in their own finances, they are more apt to make
large purchases in the near future. And with consumer spending making up
over two-thirds of our economy, investors pay close attention to reports
such as these. So, a decline in confidence would be good news for mortgage
rates because it means many consumers will probably delay making a large
purchase in the immediate future, limiting economic activity.
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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