June 15th, 2009 11:16 PM by Lehel Szucs
Monday's bond market has opened in positive territory following strong selling in stocks. The major stock indexes are posting sizable losses with the Dow down 202 points and the Nasdaq down 52 points. The bond market is currently up 13/32, which should improve this morning's mortgage rates by approximately .375 of a discount point over Friday's morning rates.
The first data of the week comes tomorrow with the release of three relevant reports. The day's reports are a broad spectrum of data ranging from housing figures to manufacturing output to an important inflation reading. Their importance to the markets also is a wide variety. The first report of the day is May's Housing Starts that tracks starts of new home projects. It is the week's least important report and likely will not affect mortgage rates unless its results vary greatly from the 5.5% increase that has been forecasted.
The second is one of the two highly important reports of the we ek. May's Producer Price Index (PPI) will also be posted early tomorrow morning. It helps us measure inflationary pressures at the producer level of the economy. There are two readings of this index, the overall and the core data. The core data is considered to be the more important of the two because it excludes more volatile food and energy prices. A large increase could raise concern about inflation rising as soon as the economy pulls out of the recession. This would not be good news for bond prices or mortgage rates since inflation erodes the value of a bond's future fixed interest payments. Rising inflation causes investors to sell bonds, driving prices lower and mortgage rates higher. Analysts are expecting to see an increase of 0.6% in the overall index and a 0.1% rise in the core data. It will not take much of a variance from forecasts for the markets to react, which would most likely lead to changes in mortgage rates.
The third and final piece of dat a scheduled for Tuesday is May's Industrial Production. This report will be released at 9:15 AM ET and is considered to be moderately important. It measures output at U.S. factories, mines and utilities, giving us a fairly important measurement of manufacturing sector strength. If it reveals that production is rising, concerns of manufacturing strength may come into play in the bond market. A larger than expected 0.8% decline would indicate that the manufacturing sector is weaker than expected and should help push mortgage rates lower. That is assuming that the PPI doesn't surprise us.
Overall, look for tomorrow to be the biggest day of the week. Not just because it brings the release of three of the five reports, but also because it brings us the PPI that is considered to be a key inflation reading. Wednesday is also very important with the CPI being posted, so look for the most movement in rates during the middle part of the week.
If I were conside ring 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... 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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