Tuesday, August 10, 2010

Posted: August 10, 2010 in Uncategorized



Tuesday’s bond market has opened up slightly after this morning’s economic news gave us mixed results. The stock markets are showing losses with the Dow down 84 points and the Nasdaq down 21 points. The bond market is currently up 2/32, which may improve this morning’s mortgage rates by approximately .125 of a discount point.


Second quarter Employee Productivity and Costs data was released early this morning. It revealed a surprising 0.9% decline in worker productivity. This means that employees were less productive during the quarter than many had thought. That can be considered bad news for bonds, but offsetting that surprise was a much smaller than expected increase in labor costs. They rose 0.2% compared to the 1.4% rise that was forecasted, which means that employer costs for wages rose at a slower pace than expected. That can be considered good news for the bond market and mortgage rates because rising costs translates into higher prices for products at the consumer level and gives workers more money to spend, fueling economic activity.


Today also brings us another FOMC meeting. It is a single day meeting that will adjourn at 2:15 PM ET. There is practically no possibility of the Fed changing key short-term interest rates, but the markets will be watching the post-meeting statement very closely. Mr. Bernanke and some of his colleagues have indicated recently that the economy is not growing as quickly as previously thought and have renewed concerns about certain hurdles such as housing and unemployment. So, it would not be a surprise to see some minor adjustment to the statement that would hint a more cautious tone than previous statements. If this is the case, we may see bond prices rise and mortgage rates move lower during afternoon trading today.


Tomorrow’s only data will be June’s Trade Balance report at 8:30 AM ET. It gives us the size of the U.S. trade deficit but is the week’s least important report and likely will have little impact on the bond market and mortgage rates. Analysts are expecting to see a $42.5 billion deficit, but it will take a wide variance to directly influence mortgage pricing.


Look for an update to this report shortly after the markets have an opportunity to react to this afternoon’s event.


If I were considering financing/refinancing a home, I would…. Float if my closing was taking place within 7 days… Float 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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