June 16th, 2009 1:27 PM by Lehel Szucs
Tuesday's bond market has opened in negative territory despite weaker than expected inflation and manufacturing news. The stock markets are showing modest gains, but that is good news for stock traders following yesterday's selling. The Dow is currently up 16 points while the Nasdaq has gained 12 points. The bond market is currently down 11/32, but we will still see an improvement in this morning's mortgage rates of approximately .125 - .250 of a discount point due to strength in bonds late yesterday.
May's Housing Starts was posted early this morning and gave us news that was not favorable for bonds. It showed a 17.2% rise in starts of new homes last month. This was a much higher increase than was expected and hints that the housing sector, at least new construction, may be stabilizing. Even the new permits portion of the report that indicates new starts in the immediate future exceeded forecasts. However, this data generally is not considered to be hig hly important unless it varies greatly from forecasts. Unfortunately, this variance was enough to influence bond trading and mortgage rates.
The second release of the day was May's Producer Price Index (PPI). It tracks inflationary pressures at the producer level of the economy. It gave us much weaker than expected readings, meaning inflation was less of a threat than many had thought. The 0.2% increase in the overall index and the 0.1% decline in the more important core data were both favorable readings for bonds, especially when they were expected to come in at up 0.6% and up 0.1%. If prices are not increasing at the producer level, then it is more likely that prices at the more important consumer level of the economy will also remain under control.
Today's third and final report came later this morning when May's Industrial Production data was posted. It showed a 1.1% decline in output at U.S. factories, mines and utilities when analysts were e xpecting to see a 0.8% drop. This is also good news for bonds because slowing manufacturing activity extends the likelihood of an economic recovery. Since bonds are generally more attractive in a weak economy, news that points toward a delay in the recovery is considered good news for bonds. This usually translates to lower mortgage pricing.
Tomorrow's only data is the week's most important and arguably the single most important report we see each month. The Labor Department will post May's Consumer Price Index (CPI) early tomorrow morning. It is very similar to today's PPI, but measures inflationary pressures at the more important consumer level of the economy. It is expected to show a 0.3% rise in the overall reading and a 0.1% increase in the core data. Larger than expected increases will most likely lead to noticeable upward changes to mortgage rates tomorrow. However, weaker than expected readings could lead to rate improvements.
If I were cons idering 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.
©Mortgage Commentary 2009