Thursday, August 12, 2010

Posted: August 12, 2010 in Uncategorized

Thursday’s bond market has opened flat following weaker than expected results from today’s minor economic news. The stock markets are extending yesterday’s sell-off after tech-giant Cisco Systems reported disappointing earning results. The Dow is currently down 58 points while the Nasdaq has lost 18 points. The bond market is currently up 2/32, which will likely keep this morning’s mortgage rates at yesterday’s levels.

The Labor Department gave us today’s only semi-relevant economic data with the release of last week’s unemployment numbers. They said early this morning that 484,000 new claims for unemployment benefits were filed last week. That was a slight increase from the previous week’s revised total and a much larger number than what analysts were expecting this morning. Therefore, this data can be considered favorable for the bond market and mortgage rates.

Yesterday’s 10-year Treasury Note sale went fairly well. The readings used to measure its success were a little mixed, but overall it is being considered positive for the broader bond market. If today’s 30-year Bond sale goes equally well, we may see further improvements to bonds later today. However, I am not expecting a reaction that is strong enough to improve mortgage rates this afternoon. Results of the sale will be posted at 1:00 PM ET.

Tomorrow brings us the release of three reports, two of which are highly important to the markets and mortgage rates. The first is July’s Consumer Price Index (CPI) at 8:30 AM. The CPI is one of the most important reports we see each month. It measures inflation at the consumer level of the economy. There are two readings in the report- the overall index and the core data reading. The more important of the two is the core data because it excludes more volatile food and energy prices. Current forecasts call for a 0.2% increase in the overall index and a 0.1% increase in the core data reading. Declines in the readings, especially in the core data, should lead to a bond rally and lower mortgage rates. However, if we see stronger than expected readings tomorrow, mortgage pricing may jump higher.

July’s Retail Sales data is the second report of the day and is nearly important as the CPI. This data is very important to the financial markets and mortgage rates because it helps us measure consumer spending. Since consumer spending makes up two-thirds of the U.S. economy, any data related to it can cause a fair amount of movement in the markets. A smaller than expected increase would indicate that consumers are spending less than previously thought, potentially slowing the economic recovery. This is good news for the bond market and mortgage rates as it eases inflation concerns and makes long-term securities such as mortgage-related bonds more attractive to investors. Current forecasts are calling for an increase of 0.5%.

The last report of the day will come from the University of Michigan, who will release their Index of Consumer Sentiment for August at 9:45 AM. This index gives us a measurement of consumer willingness to spend. If confidence is rising, then consumers are more apt to make large purchases. This helps fuel consumer spending and economic growth. By theory, a drop in confidence should boost bond prices, but this is the least important of the day’s three reports and will probably have little impact on rates.

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… Float if my closing was taking place between 21 and 60 days… Float if my closing was taking place over 60 days from now…

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s