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Mortgage Rates (9/26/2010 - The Week Ahead)

September 27th, 2010 8:37 AM by Lehel S.

This week brings us the release of five relevant economic reports for the bond market to digest in addition to two relevant Treasury auctions. There is nothing of importance scheduled for release tomorrow, so look for the stock markets to influence bond trading and possibly mortgage rates. Generally speaking, stock market strength makes bonds less appealing to investors and leads to higher mortgage pricing. But I would not be surprised to see a relatively calm day tomorrow as traders prepare for this week's data.

The first release of the week is September's Consumer Confidence Index (CCI) late Tuesday morning. This Conference Board index will be posted at 10:00 AM ET and gives us a measurement of consumer willingness to spend. It is expected to show a small decline from last month's reading, indicating that consumers were less optimistic about their own financial situations than last month, therefore, less likely to make large purchases in the near future. Th is is good news for the bond market and mortgage rates because consumer spending fuels economic growth. Analysts are calling for a reading of approximately 52.9, down from August's 53.5. The smaller the reading, the better the news for the bond market and mortgage rates.

The Treasury will sell 5-year Notes Tuesday and 7-year Notes Wednesday, which will tell us if there is still an appetite for longer-term securities. If investor demand in these sales is strong, particularly from international buyers, the broader bond market should move higher, pushing mortgage rates lower. But a lackluster interest from investors could lead to bond selling and higher mortgage pricing. The results of each sale will be announced at 1:00 PM ET each day, so any reaction to the results will come during afternoon trading Tuesday and Wednesday.

Thursday's sole monthly or quarterly data is the final revision to the 2nd Quarter Gross Domestic Product (GDP). Since this data is ag ed now and the preliminary reading of the 3rd Quarter GDP will be released next month, I don't see this revision having much of an impact on the financial markets or mortgage pricing. The GDP is important because it is the total sum of all goods and services produced within the U.S. and is considered the best measurement of economic activity. It is expected to show no change from the previous estimate of a 1.6% increase in the GDP. It will take a fairly large revision for this data to move mortgage rates Thursday.

Friday has three reports scheduled that may influence mortgage rates. The first is August's Personal Income and Outlays early Friday morning. It gives us an indication of consumer ability to spend and current spending habits. This is important to the markets because consumer spending makes up two-thirds of the U.S. economy. Rising income generally indicates that consumers have more money to spend, making economic growth more of a possibility. This is n egative news for the bond market and mortgage rates because it raises inflation concerns, making long-term securities such as mortgage related bonds less attractive to investors. It is expected to show a 0.3% rise in income and a 0.3% increase in spending. If we see smaller than expected increases, the bond market should react positively, leading to lower rates Friday. 

The second report is the University of Michigan's revised Index of Consumer Sentiment for September. The preliminary reading that was released earlier this month showed a 66.6 reading. Analysts are expecting to see a small upward revision, meaning consumer confidence was slightly higher than previously thought. As with Tuesday's CCI release, a lower than expected reading would be good news for bonds and should help improve mortgage rates. 

The Institute for Supply Management (ISM) will post their manufacturing index for September late Friday morning. This index measu res manufacturer sentiment. Analysts are expecting a decline from last month's 56.3 reading. The 50.0 benchmark is extremely important because a reading above that level means more surveyed executives felt business improved than those who said it had worsened. This data is important not only because it measures manufacturer sentiment, but it is also very recent data. Some economic releases track data that are 30-60 days old, but the ISM index is only a few weeks old. If it reveals a reading below 54.5, meaning sentiment fell short of expectations, we should see the bond market rally and mortgage rates fall Friday. This is one of the more important reports of the week.

Overall, it is likely going to be a fairly active week in the markets and mortgage rates. The most important day will likely be Friday due to three reports being scheduled, but Tuesday's events can also heavily influence mortgage rates. This is one of those weeks that I recommend maintaining contact with your mortgage professional if still floating an interest rate.

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. 
Posted in:General
Posted by Lehel S. on September 27th, 2010 8:37 AM



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