August 14th, 2008 9:19 PM by Lehel Szucs
Thursday's bond market has opened in positive territory despite a larger than expected increase in consumer prices and early stock gains. The stock markets are showing noticeable gains after initially opening in the red. The Dow is currently up 115 points while the Nasdaq has gained 22 points. The bond market is currently up 6/32, but we will likely see an increase in this morning's mortgage rates of approximately .125 - .250 of a discount point due to weakness late yesterday.
This morning's release of July's Consumer Price Index (CPI) showed that consumer prices rose 0.8% last month, doubling analysts' forecasts. Fortunately, the core data reading was much closer to forecasts with an increase of 0.3%. These figures raised inflation concerns since they pushed the annual rate of inflation to a 17-year high. However, the bond market seems to be reacting in a much more subtle way than one would expect since inflation is the number one nemesis for long-term se curities such as mortgage related bonds.
The Labor Department reported this morning that 450,000 for new benefits were filed last week. This was a decline from the upward revision of 460,000 of the previous week, but was still higher than the 436,000 that were expected. This can be considered good news for bonds and mortgage rates, however, since this data only tracks a week's worth of claims its' impact on the markets is usually limited.
There are two pieces of data scheduled for release tomorrow. The first is Industrial Production data for July. This report gives us a measurement of manufacturing sector strength by tracking output at U.S. factories, mines and utilities. It is considered to be of moderately high importance and may cause movement in mortgage rates. Analysts are currently expecting to see no change in production between June and July. An increase in output could lead to higher mortgage rates tomorrow, while a weaker than expected figur e should help push rates lower.
The second report of the day will come from the University of Michigan who will release its Index of Consumer Sentiment for August at 9:45 AM. This index gives us a measurement of consumer willingness to spend. If confidence is rising, then consumers are more apt to make large purchases. This helps fuel consumer spending and economic growth. A drop in confidence will probably boost bond prices, leading to lower mortgage rates. If the index rises, indicating that confidence is rising and spending is likely to continue, we may see mortgage rates move higher tomorrow.
If I were considering financing/refinancing a home, I would.... Float 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 fina ncing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.
©Mortgage Commentary 2008