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Wednesday’s bond market has opened in negative territory following
stronger than expected economic data and early stock strength. The same
economic data is helping to boost stocks this morning, pushing the Dow
higher by 113 points while the Nasdaq has gained 19 points. The bond
market is currently down 20/32, which will likely push this morning’s
mortgage rates higher by approximately .250 - .375 of a discount point
over yesterday’s morning pricing.
There were two pieces of economic data posted this morning but the key
report came at 8:30 AM when we got the initial reading of the 2nd Quarter
Gross Domestic Product (GDP). It showed that the economy grew at an
annual rate of 1.7% during the second quarter, exceeding forecasts of a
1.1% increase. This means the economy was stronger during the quarter,
making the data negative for the bond market and mortgage rates. Since
this report is considered to be the benchmark reading for economic
activity and is highly important to the markets, it has caused the bond
market to go into selling mode.
The second report of the day was 2nd quarter Employee Productivity and
Costs data that revealed a 0.5% increase in worker productivity. This was
just a bit higher than analysts were expecting, theoretically making it
good news for mortgage rates. However, this was a minor variance in a
moderately important report that was released at the same time as the GDP
reading, so it has had little impact on this morning’s trading or
mortgage pricing.
We also have this afternoon’s adjournment of another FOMC meeting that
will likely lead to plenty of volatility in the financial and mortgage
markets later today. This is not a meeting that will be followed by a
press conference with Chairman Bernanke and is expected to yield no
change to key interest rates. Although, there is a lot of speculation
that the post meeting statement may clarify the Fed’s position or
estimation of when they will begin to slow their current $85 billion
monthly bond buying program (QE3). This topic has caused a firestorm in
the markets multiple times over the past two months, and not always
logically. Therefore, it is difficult to make a prediction of what to
expect. Theoretically, we would like to hear something that would hint
the Fed will not start tapering their purchases in September as many
analysts currently believe.
One would think that since the current consensus has September when the
Fed will start, hearing it again would not have a negative impact on the
bond market. Unfortunately, logic and history does not seem to be a good
indicator on how the markets will react to such news recently. That
leaves us little to base a prediction on, other than to hold our breath
and hope sanity quickly returns to the markets. The meeting will adjourn
at 2:00 PM ET, so the fun should begin mid-afternoon. Look for an update
to this report shortly after the markets have an opportunity to react to
what is said. There is important economic data set for release tomorrow
(ISM manufacturing index), but that will be covered in today’s afternoon
revision.
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... Lock if my closing was taking place over 60
days from now...
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