September 30th, 2009 7:13 PM by Lehel Szucs
Wednesday's bond market has opened flat despite early stock weakness. The stocks markets are posting noticeable losses with the Dow down 83 points and the Nasdaq down 15 points. The bond market is nearly unchanged from yesterday's closing level, but we should still see an improvement in this morning's mortgage rates of approximately .250 of a discount point due to strength late yesterday.
Today's only relevant economic data was the final revision to the 2nd Quarter Gross Domestic Product (GDP). It showed a revised reading of a 0.7% decline that was stronger than expected. The last revision revealed a 1.0% drop in GDP, meaning the economy was stronger last quarter than many had thought. Theoretically, this is negative news for bonds because stronger economic activity makes long-term securities such as mortgage-related bonds less attractive to investors. However, this data is so aged now that it has not had much of an impact on trading this morning or today 's mortgage rates.
This morning's speech by Atlanta Federal Reserve Bank President Dennis Lockhart gave us a bit of interesting news. It appears that not all Fed members agree about certain actions taken by them to head off the crisis in the markets and to boost economic activity and their exit plan from those moves. But none of his comments are concerning. His outlook on the economy was in line with the general consensus- cautious optimism and concern about the housing and labor markets particularly. I don't believe his comments affected trading or mortgage pricing this morning.
Tomorrow morning brings us the release of two important economic reports. The first is August's Personal Income and Outlays at 8:30 AM ET. 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 negative 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 0.1% rise in income and a 1.1% increase in spending due to auto sales.
The Institute for Supply Management's (ISM) September manufacturing index is the second. It will be released at 10:00 AM ET tomorrow morning. This index gives us an indication of manufacturer sentiment. Analysts are expecting an increase to 54.0 from last month's 52.9 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 IS M index is only a few weeks old. If we get a smaller than expected reading, I expect to see the bond market rally and mortgage rates fall tomorrow morning.
If I were considering financing/refinancing a home, I would.... Lock 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 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