Bond Market Today, What to expect this week

This week brings us four factual economic reports for the markets to digest. They are all scheduled for release Thursday and Friday, so the first part of the week will be left mostly up to the stock markets. In addition to the factual reports, we will also get the minutes from the last FOMC meeting that can also cause movement in rates. Three of the four reports and the minutes are considered to be moderately or highly important to the bond market and mortgage rates. Therefore, we should expect to see another week of movement in rates.

The bond market will be closed tomorrow in observance of the Columbus Day holiday. The first report of the week comes Tuesday afternoon when the Fed will release the minutes to the last FOMC meeting. These may be a major mover of the markets or could be a non-factor, depending on what they say. The key will be concerns over inflation and the Fed's next move. If the Fed members were concerned about inflationary pressures, we may see the bond market move lower and mortgage rates higher Tuesday afternoon. However, if they indicate a likelihood of another rates cut in the coming months, we should see the bond market rise and mortgage rates drop during afternoon trading.





The first factual economic data of the week will be posted Thursday morning. August's Goods and Services Trade Balance will be released that day, but is not likely to cause much of a change in mortgage pricing. This data is actually the week's least important. It will give us the size of the U.S. trade deficit, but usually does not lead to significant movement in bond prices or mortgage rates.

There are three reports scheduled to be posted Friday. The first is September's Retail Sales report, which is very important to the markets. This data measures consumer spending by tracking sales at retail establishments in the U.S. Since consumer spending makes up two-thirds of the U.S. economy, any related data is considered to be highly important. If we see weaker than expected readings in this report, the bond market should respond favorably and mortgage rates should drop. However, stronger than expected sales could fuel a stock rally and push mortgage rates higher. Current forecasts are calling for a 0.2% increase in sales.

September's Producer Price Index (PPI) is the second report of the day. This index measures inflationary pressures at the producer level of the economy and is considered to be of high importance to the markets. Analysts are expecting to see an increase of 0.4% in the overall index and a 0.2% rise in the core data reading. The core data is the more important of the two because it excludes more volatile food and energy prices. A larger than expected increase could fuel more inflation concerns in the bond market and push mortgage rates higher. But, weaker than expected readings should lead to lower rates, especially if the sales report doesn't give us stronger than expected results.

The last report of the week is October's preliminary reading to the University of Michigan Index of Consumer Sentiment late Friday morning. This index measures consumer willingness to spend and usually has a moderate impact on the financial markets. If it shows a sizable decline in consumer confidence, bond prices will probably rise. With the days other two reports being of such importance to the markets, I am not expecting this index to cause much movement in rates. It is expected to show a reading of 84.0, up from September's final of 83.4.

Overall, this is going to be an interesting week for the bond market and mortgage rates. The first part of the week will be left to the stock markets and the Fed minutes. Once we get into the economic data, bond traders will have more factual news to trade on rather than emotion from stock market movements. The most important day of the week is obviously Friday with the Retail Sales and PPI reports, but Tuesday's Fed minutes may also lead to a fair amount of volatility.

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.

©Mortgage Commentary 2007

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