May 7th, 2010 12:54 PM by Lehel S.
Thursday's bond market has opened in positive territory yet again after this morning's economic data gave us favorable results and the stock markets continued their downward move. The Dow is currently down 72 points while the Nasdaq has fallen 25 points. The bond market is currently up 6/32, which should improve this morning's mortgage rates slightly.
The Labor Department said this morning that the 1st quarter employee productivity rose at a 3.6% annual rate. This was higher than expected, meaning workers were more productive than thought. The employee costs portion of the data showed a larger than forecasted decline, indicating that wages were not rising rapidly. Both of these readings were good news for bonds and mortgage rates, but the biggest factor in this morning's trading was another round of stock losses.
The Labor Department also gave us last week's unemployment figures. They announced that 444,000 new claims for u nemployment benefits were filed last week, slightly exceeding forecasts. However, this data does not carry the significance to affect mortgage rates with just a slight variance from expectations.
Tomorrow brings us the release of the almighty monthly Employment report, giving us April's employment statistics. This data has the importance to cause a huge rally or major sell-off in the bond market and large changes in mortgage rates.
The ideal situation for the bond and mortgage markets would be an increase in the unemployment rate and a much smaller number of payrolls added to the economy during the month than was expected. Current forecasts are calling for the unemployment rate to remain at 9.7% and that approximately 187,000 jobs were added to the economy during the month. Just how much of an improvement or worsening in rates depends on how much variance there is between forecasts and actual readings. This could turn out to be a wonderful day in the mortgage market, but it also carries risks of seeing mortgage rates move higher if the Labor Department posts stronger than expected readings.
The recent bond rally has been wonderful for mortgage shoppers, but I have concerns as to whether it can continue much longer. My issue is that the rally has been fueled much more by stock weakness than weak economic data. I believe there is still room for the stock markets to fall, but we have seen a significant improvement in bonds from their recent lows. The yield on the benchmark 10-year Treasury Note actually crossed over 4.00% just last month but currently stands at 3.48%. And we must keep in mind that rates usually spike higher much quicker than they fall. In other words, it will not take much bad news for the bond market to start reversing course and give back some of its recent gains.
Tomorrow's data certainly has the importance to do this and to do it quickly. It is my opinion that if tomorrow' s data shows stronger than expected results that we will see the bond market go into selling mode, driving mortgage rates higher. I also believe that it will take much weaker than forecasted results for the bond market and mortgage rates to greatly improve. I also think it is going to take a lot for the bond market to react favorably to the data but just a little surprise to create a negative reaction. Accordingly, I strongly recommend proceeding with caution into tomorrow if still floating an interest rate.
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 othe r borrowers.