September 3rd, 2009 10:47 PM by Lehel Szucs
Thursday's bond market has opened in negative territory after the stock markets opened with minor gains and there was no important economic data on the calendar to influence trading. The Dow is currently up 25 points while the Nasdaq has gained 5 points. The bond market is currently down 4/32, which will likely push this morning's mortgage rates higher by approximately .125 of a discount point.
The only semi-relevant economic data posted today was last week's unemployment figures from the Labor Department and the ISM services index. Many traders are waiting for tomorrow's major news before making adjustments to their portfolios. The Labor Department reported this morning that 570,000 new claims for unemployment benefits were filed last week and the ISM index revealed a reading of 48.4. Both of these were very close to expectations but neither are considered to be of much importance to the markets. Therefore, the bond market has been mostly influenced by stock trading and preparation for tomorrow's news.
Yesterday's afternoon release of the FOMC minutes didn't have much of an impact on trading or mortgage rates. They revealed that the Fed is still optimistic about an economic recovery, but at a slow pace. They are still concerned about the vulnerability of the recovery and particularly the labor market and they also did not reference a significant concern about inflation- all good news for bonds. However, none of it came as much of a surprise to traders.
The big news of the week comes tomorrow morning. The Labor Department will post the unemployment rate, number of new jobs added or lost and average hourly earnings for August early Friday. The ideal scenario for the bond market and mortgage rates is rising unemployment, a larger than expected drop in payrolls and earnings to remain unchanged. Analysts are expecting to see that the unemployment rate moved from 9.4% to 9.5% and that 225,000 jobs were l ost during the month. Weaker then expected readings would be very good news for bonds and likely lead to lower mortgage rates tomorrow. But, if we get stronger than expected numbers, mortgage rates will probably spike higher tomorrow.
I suspect that we will need to see weaker than expected readings for bonds to rally tomorrow. With the bond market at the higher end of its recent trading range, just matching forecasts may be a relief for stocks that could lead to selling in bonds and a rally in stocks. Accordingly proceed cautiously if still floating any interest rate and closing in the immediate future.
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 w ere 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