May 19th, 2010 4:32 PM by Lehel S.
Tuesday's bond market has opened in positive territory despite conflicting economic news. The stock markets are mixed with the Dow up 22 points and the Nasdaq down 13 points. The bond market is currently up 7/32, but I don't believe we will see much of an improvement in this morning's rates due to weakness late yesterday.
This morning's first piece of data was April's Producer Price Index (PPI). The Labor Department announced that the overall reading fell 0.1% when it was expected to show a small increase. The bad news came in the more important core data reading that showed a 0.2% increase. This exceeded forecasts of a 0.1% rise, meaning inflationary pressures that the producer level of the economy rose more than thought. This can be considered negative news for the bond market and mortgage rates because inflation erodes the value of a bond's future fixed interest payments. That makes them less appealing to investors and leads to higher mortgage rates in most circumstances. However, this morning's surprise was not enough to have much of an impact on this morning's rates.
Today's second report was April's Housing Starts that showed starts of new home construction rose more than expected last month. This indicates that housing sector was stronger than thought, however, many fewer permits for future starts were issued than analysts were expecting to see. That means that last month's growth in new home building likely will not continue into May. The latter is good news for bonds and mortgage rates, but this data is not considered to be highly important to the bond market.
Tomorrow's only economic data is April's Consumer Price Index (CPI) at 8:30 AM ET. It is similar to today's PPI report, but measures inflationary pressures at the more important consumer level of the economy. Its' results will be watched closely and can lead to significant volatility in the bond market and mortgage pricing. Current fo recasts are calling for a 0.1% increase in the overall index and a 0.1% increase in the core data reading. As with today's PPI, the core data is the more important of the two readings.
Also tomorrow will be the release of the minutes from the last FOMC meeting. Market participants will be looking for how Fed members voted during the last meeting and any comments about inflation concerns in the economy. The goal is to form opinions about when the Fed may make a move to key short-term interest rates. The minutes will be released at 2:00 PM ET, so if there is a market reaction to them it will be evident during afternoon trading.
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... Lock 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.