October 29th, 2009 8:14 AM by Lehel S.
Thursday's bond market has opened in negative territory after today's important economic data gave us stronger than expected results. The stock markets are showing strength with the Dow up 86 points and the Nasdaq up 24 points. The bond market is currently down 15/32, but we will probably see little change in this morning's mortgage rates due to strength in bonds late yesterday.
Today's big news was the release of the preliminary reading of the 3rd Quarter Gross Domestic Product (GDP) that is considered to be the benchmark reading of economic activity. It showed a larger than expected jump of 3.5%, indicating that the economy grew at a faster pace than many had thought. This is bad news for bonds and mortgage rates since it raises concerns that the economic recovery may be sooner than later. Generally speaking, weak economic conditions make long-term securities such as mortgage-related bonds more attractive to investors. When the economy is expanding, in flation concerns make those securities less appealing and drive mortgage rates higher.
Yesterday's 5-year Note auction went fairly well. This leads to optimism that today's 7-year Note sale will also go well. If there is a strong demand in today's auction, we may see bonds improve this afternoon. But if the sale does not draw a decent interest from investors, mortgage rates could move higher this afternoon. Results will be posted at 1:00 PM ET today, so any reaction to them will come during afternoon trading.
There are three reports scheduled for release tomorrow. The first is the 3rd Quarter Employment Cost Index (ECI), which tracks employer costs for salaries and benefits. Rapidly rising costs raises wage inflation concerns and may hurt bond prices. It is expected to show an increase in costs of 0.4%. A smaller than expected increase would be good news for bonds and mortgage rates.
September's Personal Income and Outlays report will als o be posted early tomorrow morning. This data gives us an indication of consumer ability to spend and current spending habits. It is important to the markets because consumer spending makes up two-thirds of the U.S. economy. Rising income generally indicates that consumers have more money to spend, making economic growth more of a possibility. This is bad news for the bond market and mortgage rates because it raises inflation concerns. Analysts are expecting to see no change in income and decline in outlays of 0.5%.
The week's last report comes at 10:00 AM ET tomorrow when the University of Michigan updates their Index of Consumer Sentiment for this month. Current forecasts show this index rising slightly this month's preliminary reading of 69.4. This index is moderately important because it helps us measure consumer confidence, which is believed to indicate consumers' willingness to spend. Since consumer spending makes up two-thirds of the U.S. economy, any rel ated data is considered to be relevant.
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.