April 6th, 2010 11:17 AM by Lehel S.
Tuesday's bond market has opened in positive territory as yields in bonds make them more attractive to investors. The stock markets are helping the cause with small losses as the Dow shies away from the 11,000 level. The Dow is currently down 24 points while the Nasdaq has fallen 6 points. The bond market is currently up 10/32, which should improve this morning's mortgage rates by approximately .250 of a discount point.
There was no particular event that led to this morning's buying in bonds. There are two factors that are contributing though. The first is that 11,000 threshold that the Dow is facing. If that is a strong resistance point and cannot break it, we could see stocks retreat in the immediate future. Declining stock prices make bonds more appealing to investors. The second factor is an important threshold for the bond market. The benchmark 10-year Treasury Note is flirting with 4.00% for the first time since October 2008. If the level is brok en, it could become a floor or support level for bonds, meaning that yields could be moving higher. The problem is that mortgage rates tend to follow bond yields, so breaking that 4.00% level likely means higher mortgage rates.
But the fact that we are seeing some strong levels of buying in bonds this morning tells us that some investors think this is as high as the yield will go. If the buying continues, it should attract more funds and investors look to get in before yields move much lower. That would be a favorable situation for mortgage shoppers because the falling yields will push mortgage rates lower. The key will be the next day or two. If bonds continue to move higher the next couple of days as a result of the buying (pushing yields lower), we could expect to see mortgage rates improve the rest of the week.
The minutes from the most recent FOMC meeting will be released this afternoon. There is no relevant economic data scheduled to be post ed today. Market participants will be looking at these minutes closely. They give us insight to the Fed's current thought process and individual Fed member opinions. Any surprises in the 2:00 PM ET release, particularly about inflation or when the Fed may start raising key interest rates, could cause afternoon volatility in the markets and possible changes in mortgage pricing. Generally speaking, concerns about inflation will likely drive bond prices lower, causing yields and mortgage rates to rise.
There are two Treasury auctions scheduled this week that are relevant to mortgage rates. There is a 10-year Treasury Note sale tomorrow and a 30-year Bond sale Thursday. We could see some weakness in bonds ahead of the sales as investing firms sell current holdings to prepare for them. This weakness is usually only temporary if the sales are met with a decent demand. The results of the auctions will be posted at 1:00 PM ET each day. If the demand from investors was st rong, the bond market could rally during afternoon trading, leading to lower mortgage rates. If the sales were met with a poor demand, the afternoon weakness may cause upward revisions to mortgage pricing tomorrow and/or Thursday afternoon.
If I were considering financing/refinancing a home, I would.... Lock if my closing was taking place within 7 days... Float 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.