September 23rd, 2009 5:07 PM by Lehel Szucs
Wednesday's bond market opened slightly in negative territory as traders prepare for today's Treasury auction and the FOMC post-meeting statement. The stock markets are showing small losses with the Dow down 19 points and the Nasdaq down 2 points. The bond market is down 2/32, which will likely push this morning's mortgage rates higher by .125 - .250 of a discount point.
I am expecting to see a relative calm morning in trading and mortgage rates but would not be surprised at all to see a revision to mortgage pricing later today. This morning's weakness in bonds is common ahead of important Treasury auctions. If the sales go well, we usually see those losses recovered during afternoon trading.
The Treasury is selling 5-year Notes today and will post results at 1:00 PM ET. This sale does not directly affect mortgage rates, but it does help set the tone for bonds in general. If the sale is met with a strong demand, the broader bond market will l ikely move higher this afternoon. That includes mortgage-related bonds and should lead to downward revisions to mortgage rates later today. But if there was a weak interest in the sale, bonds may tumble after the results are posted, causing upward changes to rates.
Also today is the adjournment of the FOMC meeting that started yesterday. The 2:15 PM ET announcement will very likely say there was no change to key short-term interest rates. This is what the markets are widely expecting, so it should have little impact on trading or mortgage rates. However, the post-meeting statement could very well lead to volatility this afternoon as investors dissect it in an effort to find when the Fed's next move may come. Any indication of a potential rate increase in the near future could be disastrous for mortgage pricing because that would mean the Fed is concerned about inflation rising.
There will be an update to this report shortly after the markets have a n opportunity to react to the FOMC results. That update will also address tomorrow's data.
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... Lock 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.
WEDNESDAY AFTERNOON UPDATE:
This week's FOMC meeting has adjourned with no change to key short-term interest rates. The post meeting statement didn't give us any surprises. The Fed stated that economic activity has picked up but that the labor market is still a concern and could hamper the economic recovery. They also indicated that inflation remains subdued, which is good news for bonds.
Today's 5-year Treasury Note auction was met with a demand that can be considered on the weak side. This had initially pressured bonds until the FOMC statement was released. The reference to inflationary pressures helped ease the negative tone in the bond market that came as a result of the 1:00 PM posting of the auction data.
The stock markets initially reacted favorably to the FOMC statement with the Dow and Nasdaq both setting new highs of the day immediately after it was released. However, they have since given back those gains and are now well into negative territory, setting new lows of the day. This has helped make bonds more attractive and led to some funds being shifted into the bond market. The end result is that we may see a slight improvement to mortgage rates this afternoon, but many lenders may just wait until tomorrow morning's update to reflect that change.
Weekly unemployment figures and August's Existing Home Sales report are the only semi-relevant economic releases scheduled for tomorrow. The Labor Department will give us last week's unemployment numbers early tomorrow. They are expected to say that 550,000 new claims for benefits were filed last week. But unless we see a wide variance between that figure and the actual number, I don't believe that this report will affect mortgage rates.
The National Association of Realtors will post their Existing Home Sales figures for August late tomorrow morning. This data gives us an indication of housing sector strength by tracking home resales in the U.S. It is expected to show a moderate increase from July's sales, however, this data is not considered to be of high importance to the bond market and likely will not cause a significant change to rates unless it varies greatly from forecasts.
Also tomorrow is the 7-year Treasury Note sale. If it is met with a similar demand as today's sale was, we could see mortgage rates move higher during afternoon trading. This sale gives us a better measurement of investor appetite for longer-term securities such as mortgage related bonds than today's 5-year Note sale did. So, we may see a more profound reaction in the bond and mortgage markets if the sale goes exceptionally well or badly.
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... Lock if my closing was taking place between 21 and 60 days... Floa t 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.