July 6th, 2009 7:18 PM by Lehel Szucs
This week brings us the release of only two monthly economic reports for the bond market to digest and they both will be posted Friday. It also is the beginning of corporate earnings season. Those quarterly earnings reports can lead to significant volatility in the stock markets, which could influence bond trading and mortgage rates.
The first piece of economic news that may affect mortgage rates is Thursday's weekly unemployment figures from the Labor Department. This release usually has little influence on bond trading or mortgage rates, but with a lack of important data scheduled for release this week it may draw more attention than usual. Analysts are expecting to see that approximately 610,000 new claims for benefits were filed last week.
Both of the week's monthly economic reports are scheduled to be posted Friday morning. The first is May's Goods and Services Trade Balance report during early trading, which measures the size of the U.S. trad e deficit. This data is not considered to be of high importance to the bond market and will not likely have an impact on mortgage rates. However, if it does vary greatly from analysts' forecasts of a $30.0 billion deficit, we may see some movement in bond prices and possibly a slight change in mortgage pricing.
The second monthly report is the University of Michigan's Index of Consumer Sentiment that is released in a preliminary form each month and then followed up two weeks later with a final reading. The preliminary reading for July will be posted late Friday morning and is expected to rise slightly from June's final reading of 70.8. This would indicate that consumers were a little more comfortable with their own financial situations this month than last month. It is believed that if consumers are confident in their own finances, they are more apt to make large purchases in the near future. And with consumer spending making up two-thirds of o ur economy, investors pay close attention to reports such as these.
Also worth mentioning are a couple of Treasury auctions that are scheduled to take place this week. The Treasury will sell 10-year TIPS (Treasury Inflation Protected Securities) tomorrow, 10-year Notes Wednesday and 30-year Bonds Thursday. These sales can influence market trading in bonds and possibly affect mortgage rates. If the sales are met with a strong demand from investors, particularly Wednesday's sale, we should see afternoon improvements in bonds that could lead to downward revisions to mortgage rates. However, if concerns over the amount of debt being sold keeps buyers on the sidelines, we may see bonds fall after results are posted at 1:00 PM ET and mortgage rates move higher those days.
Lastly, Wednesday kicks off the earning reporting season when Alcoa posts their quarterly results. Market participants are anxiously waiting for these earnings reports to see just how h ard the weak economy is affecting earnings. Just as important as this past quarter's results are their forward-looking estimates. If revenue, earnings and projections from the big-named companies exceed expectations, stocks will likely rally, making bonds less appealing to investors. But if results are weaker than expected, indicating that the economy is still stifling earnings, bonds will be more attractive to investors as stocks slide. This could help boost bond prices and lead to lower mortgage rates.
Overall, I am expecting to see a fairly active week in mortgage rates. It is difficult to say which day will be the most important of the week. Friday is the easy candidate with two monthly reports scheduled to be posted, but neither is considered to be a major release. Wednesday is also a possibility due to the 10-year Note auction and the opening act of earnings season. I suspect that we may see some pressure in bonds the first part of the week unless the m ajor stock indexes continue Thursday's selling. If the corporate earnings reports that are scheduled for this week are a disappointment, stocks will probably move lower and investors may seek safe-haven in bonds. This would likely help push bond prices higher and mortgage rates lower for the week. But if the Treasury sales are met with a lackluster demand and earnings exceed expectations, rates will most likely finish the week higher than last week's closing levels.
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... 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