June 1st, 2009 10:44 AM by Lehel Szucs
Monday's bond market has opened down sharply following stronger than expected economic news and a significant rally in stocks. The Dow is currently up over 200 points while the Nasdaq has gained 50 points. This has led to heavy selling in bonds, pushing the benchmark 10-year Treasury Note down 60/32. However, the impact on this morning's mortgage rates will likely be much less than one may expect. We will probably see an increase of approximately .250 of a discount point in this morning's rates compared to Friday's morning rates due to significant strength late Friday.
April's Personal Income and Outlays data was posted at 8:30 AM, but it showed stronger than expected readings in both portions. It revealed an increase in income of 0.5%, which was a large variance form the 0.2% decline that forecasted. The surprise in the spending reading was only by .1%, but the report indicated that consumer ability to spend grew rapidly and that they were spending more than thought. This is bad news for bonds because increases in consumer spending translates into economic growth. The spike in income may also raise wage-inflation concerns once the economy begins to recover.
The Institute for Supply Management's (ISM) manufacturing index also exceeded forecasts, however, by a much more moderate amount. The index rose to 42.8 last month, compared to predictions of 42.3. This means that surveyed manufacturers were more optimistic about business conditions than in April and by a wider margin than analysts had expected. This is also bad news for bonds because expanding manufacturing activity means the economy may be stabilizing.
There is no relevant data due to be posted tomorrow, but Wednesday has two reports scheduled for release. The first and possibly the only relevant news is the Commerce Department's release of April's Factory Orders data late morning. This manufacturing sector report is similar to last week's Du rable Goods Orders release, but also includes orders for non-durable goods. It can cause some movement in the financial markets if it varies from forecasts by a wide margin, but it isn't expected to cause much change in rates this month. Current forecasts are expecting to see an increase in orders of 0.3%.
The second report of the day may have a noticeable impact on the markets or be a non-factor depending on its results. The Institute for Supply Management will release its services index late Wednesday morning. It is expected to show a reading of 45.0, with the same principals as Monday's manufacturing index. If this reading varies greatly from forecasts, we may see volatility in the markets and mortgage rates. However, if its results are in the general area of expectations, it will likely have no influence on the markets and mortgage pricing.
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.
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