December 16th, 2009 11:23 AM by Lehel S.
Tuesday's bond market has opened well in negative territory following some surprising inflation news. The stock markets are relatively calm with the Dow down 10 points and the Nasdaq nearly unchanged. The bond market is down 13/32, which should push this morning's mortgage rates higher by approximately .250 - .375 of a discount point.
The Labor Department gave us the news that fueled this morning's bond selling. They said that the Producer Price Index (PPI) spiked 1.8% last month and that the core data reading rose 0.5%. Both of these readings were more than twice forecasts, meaning inflationary pressures were strong at the producer level of the economy last month. This is bad news for bonds and mortgage rates because inflation erodes the value of a bond's future fixed interest payments, making them less attractive to investors. The result usually is bond selling and higher mortgage rates.
November's Industrial Production data also gave us str onger than expected results with a 0.8% increase. Forecasts were calling for a 0.5% increase, indicating that manufacturing activity at U.S. factories, mines and utilities was stronger than thought. This is also bad news for bonds because it points towards a strengthening economy.
This week's most important economic data tomorrow's release of November's Consumer Price Index (CPI). It is the sister report of today's Producer Price Index, except it tracks inflationary pressures at the more important consumer level of the economy. Current forecasts call for an increase of 0.4% in the overall index and a 0.2% rise in the core data reading. The core data is watched more closely because it excludes more volatile food and energy prices, giving a more stabile reading for analysts to consider.
November's Housing Starts report will also be released tomorrow morning, but I don't see it causing much movement in mortgage rates. This report, which is expected to s how a sizable increase in starts of new homes, gives us an indication of housing sector strength and future mortgage credit demand. However, it can be considered the least important of this week's news.
The last FOMC meeting of the year began today and will adjourn at 2:15 PM ET tomorrow. There is not much debate about what the Fed will do at this meeting with little chance of them raising key short-term interest rates. Therefore, the post meeting statement will likely be the sole source of a market reaction. This statement has the potential to have a significant influence on the markets and mortgage rates as investors look for any indication of what and when the Fed may do next. Generally speaking, the bond market would like to hear something that indicates the Fed will not be raising rates anytime soon.
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 pla ce 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.