Monday's bond market has opened in negative territory as the markets await tomorrow's events. The stock markets are showing losses also with the Dow down 65 points and the Nasdaq down 20 points. The bond market is currently down 3/32, which with Friday's late weakness, will push this morning's mortgage rates higher by approximately .250 of a discount point over Friday's morning rates.

There is no relevant news scheduled for release today. The first important piece of data comes tomorrow morning with the release of August's Producer Price Index (PPI). This report will give us a very important measurement of inflationary pressures at the producer level of the economy. There are two readings that analysts follow in this release. They are the overall index and the core data reading. The core data is the more important of the two because it excludes more volatile food and energy prices. Analysts are currently calling for a 0.3% decline in the overall index, and a rise of 0.1% in the core data. Stronger than expected readings could fuel inflation concerns in the bond market and lead to an increase in mortgage rates tomorrow morning.

The FOMC meeting will adjourn at 2:15 PM tomorrow. There is significant debate about a possible change to key short-term interest rates at this meeting. The general consensus is that the Fed will cut rates for the first time since June 2003. There is also debate about how much of a rate cut is coming. Many analysts are calling for a half-point decline at this meeting or a quarter point cut at the next two meetings. I am not so sure the Fed will lower the Fed Funds rate at this meeting. My estimates are only 30% chance of it happening at this meeting and only little possibility of a half point cut. But, Mr. Bernanke and friends have little interest in our thoughts. I suspect that if they leave rates unchanged, the financial markets will be disappointed and will tank. A quarter point move will also be somewhat of a disappointment and could lead to weakness in stocks.

The wildcard is that regardless of how the markets react to the Fed move and its post-meeting statement, if we see significant weakness in stocks, the bond market may benefit as a safe-haven from the volatility. This could lead to lower mortgage rates. However, that is much too speculative to bet that way with mortgage rates. There just is no way to predict am emotional response in the markets. Accordingly, I strongly recommend proceeding carefully regarding mortgage rates the next few days.

Overall, I expected to see some pressure in bonds today as investors prepare for tomorrow's data and FOMC meeting. I am not in total agreement with what many analysts and market participants are predicting will happen tomrorow, therefore, I am holding the lock recommendations for the time being. Please proceed cautiously is still floating an interest rate. This will likely be one of those key weeks in the mortgage market.

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.