Thursday’s bond market has opened in negative territory again as the negative momentum in bonds continues. Stocks are fairly calm after this morning’s economic data failed to show any major surprises. The Dow is currently up 23 points while the Nasdaq has gained 11 points. The bond market is currently down 16/32 (1.84%), which should push this morning’s mortgage rates higher by approximately .250 of a discount point.
Yesterday’s 5-year Treasury Note sale was uneventful. The benchmarks we use to gauge investor demand for the securities showed an above average interest, but not a strong demand. That leaves us little to use to predict today’s 7-year Note auction. If investor interest is high today, we could see bonds improve a little later. However, I suspect that this event will do little to alter the negative tone we are seeing in bonds currently. Results will be posted at 1:00 PM ET, so any reaction will come during early afternoon trading.
There were two economic reports posted at 8:30 AM ET this morning, yet neither seemed to have an impact on the markets. There more important of the two was September’s Durable Goods Orders that showed a 0.1% decline in new orders for big-ticket items such as airplanes, appliances and electronics. This was a little softer than the no change that was predicted, but for this report it is equal to matching expectations. This data is so volatile from month to month that a variance in size that is big news in other reports is irrelevant for this one. Even a secondary reading that excludes more costly transportation-related orders such as new airplanes showed a minimal miss.
The second release was last week’s unemployment figures that revealed 258,000 new claims for benefits were filed. This was a small decline from the previous week’s revised total of 261,000 initial claims. Analysts were expecting to see 258,000 new filings, so this report also had little influence on today’s bond trading and mortgage pricing.
Tomorrow has three economic reports for the markets to digest, one of which is extremely important. The first of the batch is the preliminary reading of the 3rd Quarter Gross Domestic Product (GDP) at 8:30 AM ET. The GDP is considered to be the benchmark measurement of economic growth because it is the total of all goods and services produced in the U.S. and therefore is likely to have a major impact on the financial markets and mortgage pricing. There are three versions of this report, each a month apart. Friday's release is the first and usually has the biggest influence on the markets. Current forecasts call for an increase of approximately 2.5% in the GDP, which would mean that the economy grew at a noticeably stronger pace than the 2nd quarter's 1.4% rate. If this report shows a much smaller increase, I am expecting to see the bond market rally and mortgage rates fall. However, a larger than expected rise could lead to a rally in stocks, bond selling and a sizable increase in mortgage pricing tomorrow morning.
The 3rd Quarter Employment Cost Index (ECI) will also be released at 8:30 AM ET tomorrow. It is the least important of the day's three reports. This data tracks employer costs for salaries and benefits, giving us an indication of wage inflation pressures. Rapidly rising costs raise wage inflation concerns and may hurt bond prices. It is expected to show an increase in costs of 0.6%. A smaller than expected increase would be good news for mortgage rates, but this is not one of the more important reports of the week. And since it comes at the same time as the initial GDP reading, it will not draw much attention.
The week's last report of the week comes just before 10:00 AM ET tomorrow when the University of Michigan updates their Index of Consumer Sentiment for this month. This report is moderately important because it helps us measure consumer confidence, which is believed to indicate consumers' willingness to spend. Current forecasts show this index rising slightly from its preliminary reading of 87.9 to 88.3. Good news for mortgage rates would be a sizable decline in the index.
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... This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.
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