January 16th, 2009 10:47 AM by Lehel Szucs
Friday's bond market has opened down sharply following the release of mixed economic news and concerns about future sales of related securities. The stock markets are mixed with the Dow up 13 points and the Nasdaq down 3 points. The bond market is currently down 45/32, which will likely push this morning's mortgage rates higher by approximately .375 of a discount point.
There were three economic reports released this morning with the most important coming first. The Labor Department said that the overall reading in December's Consumer Price Index (CPI) fell 0.7% when it was expected to fall 0.9%. However, the more important core data reading was unchanged from November's level when it was forecasted to rise 0.1%. This means that food and energy costs did not fall as much at the consumer level of the economy as was expected. The good news is that other prices did not rise.
December's Industrial Production report was next with a surprising drop in output of 2.0%. This was more than twice the decline that analysts were expecting. This, and a large downward revision to November's output, indicates that output at U.S. factories, mines and utilities are spiraling lower. This is not good news for the economy, but is generally taken as favorable for bonds and mortgage rates.
The final report of the week was January's preliminary reading to the University of Michigan's Index of Consumer Sentiment that showed a higher level of sentiment than was expected. The reading of 61.9 was an increase from December's final reading and stronger than the decline to 59.8 that was expected. This indicates that consumer willingness to spend may be rising, which is not considered to be good news for bonds.
Today's data has not seemed to heavily influence bond trading and mortgage rates this morning. What seems to be driving bonds lower this morning is concern that more economic stimulus and government bailout f unds are going to require a significant increase in the amount of debt the government will need to sell in the near future. That additional supply weakens demand for current securities in the market. Unfortunately, this issue may come to light more often in the coming weeks. Hopefully the concern over corporate earnings and economic weakness will help fuel investor appetite for mortgage related bonds. If not, we may see mortgage rates begin an upward trend.
Next week brings us very little economic data for the markets to digest. There is nothing of interest or relevance Monday that needs to be noted today. It will be a very quite week in terms of economic releases, but as we have seen many times in the past this is not a guarantee that we will have a calm week in mortgage rates. Look for a summary of next week's events and expectations in Sunday's weekly preview.
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... 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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