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Wednesday’s bond market has opened in positive territory following weaker
than expected economic data and calming words by Fed Chairman Bernanke. The
stock markets are showing early strength also with the Dow up 34 points and
the Nasdaq up 12 points. The bond market is currently up 18/32, which
should improve this morning’s mortgage rates by approximately .375 of a
discount from yesterday’s morning pricing. A portion of that improvement is
a result of bond strength late yesterday, but most of it is due to a
favorable response to Chairman Bernanke’s prepared statement that was
released before his appearance today.
This morning’s only economic data came at 8:30 AM ET when the Commerce
Department posted June’s Housing Starts report. It revealed that new
construction starts of new housing fell almost 10% last month when analysts
were expecting to see an increase. It also dropped new starts to their
lowest level in nearly a year, indicating housing sector weakness. That
makes the data good news for the bond market and mortgage rates.
Fed Chairman Bernanke started part one of his two-day semi-annual update
about the status of our economy and Fed monetary policy before Congress at
10:00 AM ET. He is speaking before the House Financial Services Committee
today and the Senate Banking Committee tomorrow. His opening testimony was
released to the media earlier this morning, causing a positive reaction in
bonds and a neutral reaction in stocks.
His prepared statement more or less clarified the Fed’s stance on the hot
topic of tapering of their current bond buying program (QE3). The key was
the indication that there is no set plan on place yet. They estimate to
start slowing the bond purchases later this year and end it mid-next year,
however, that is based on continued economic growth at current or a better
pace the next couple months. He reiterated that those estimates can be revised
if economic growth, unemployment or inflation changes from their current
estimates. That seemed to ease concerns in the bond market that the Fed was
on a rapid course of ending the program. Since the Fed is buying long-term
debt for QE3, the clarification that there is a strong possibility of them
still buying into the next year as helped boost bond prices during morning
trading.
We have an afternoon event to watch today, but I don’t believe it will have
a noticeable influence on today’s mortgage rates. That would be the release
of the Fed Beige Book report at 2:00 PM ET. This report is named simply
after the color of its cover, but is considered to be important to the Fed
when determining monetary policy during their FOMC meetings. It details economic
activity and conditions by Federal Reserve region throughout the U.S. I
don't think we will see any significant surprises in this report, so any
reaction to it this afternoon will likely have a minimal impact on mortgage
rates.
With exception to the second day of Chairman Bernanke’s congressional
testimony, the only things of relevance scheduled for release tomorrow are
the weekly unemployment update from the Labor Department at 8:30 AM ET
(348,000 new claims expected) and June's Leading Economic Indicators (LEI)
at 10:00 AM. The LEI is a Conference Board index that attempts to measure
economic activity over the next three to six months. While it is not a
factual report, it still is considered to be of moderate importance to the
bond market. It is expected to show a 0.3% increase, meaning it is
predicting minor economic growth over the next few months. A large decline
in the index and a higher number of initial unemployment claims would be
good news for the bond and mortgage markets.
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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