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Monday’s bond market has opened up sharply due to significant stock losses in early trading. The stock markets are reacting to the downgrade news as we expected, following suit of overseas markets. They are starting the week off with a 296 point drop in the Dow while the Nasdaq has lost 84 points. What was more of an unknown was how bonds would react to the news. They are benefiting from the stock losses much more than the downgrade is hurting them. The bond market is currently up 34/32, but due to significant weakness in bonds late Friday, this morning’s improvement to mortgage pricing will likely be minimal.
There is nothing of importance scheduled for release today, so Friday evening’s news of the S&P downgrade to our credit rating is driving most of this morning’s trading. After the huge sell-off in bonds Friday, this morning’s improvement looks quite pleasing. However, we should proceed extremely cautiously as I believe there is more of an upward correction needed in bond yields before we can see a sustainable downward trend in mortgage rates again. In other words, this may just be a bounce and further weakness in bonds might be right around the corner.
This week brings us the release of four relevant economic reports in addition to another FOMC meeting and two relevant Treasury auctions. The first data of the week is tomorrow’s release of 2nd Quarter Employee Productivity and Costs data. It will give us an indication of employee output per hour. High levels of productivity are believed to allow the economy to grow without fears of inflation. I don't see this being a big mover of mortgage pricing, but since it is the only data of the day it may influence rates slightly during morning trading. Analysts are currently expecting to see a decline in productivity of 0.6% and a 2.2% jump in labor costs. A stronger than expected productivity reading and a smaller than expected increase in costs could help improve bonds, leading to lower mortgage rates tomorrow.
The FOMC meeting is a single-day event tomorrow that will adjourn at 2:15 PM ET. It is expected to yield no change to key interest rates. Usually, the post-meeting comments seem to have more of an influence on the markets than the rate adjustments themselves, or a lack of one in many cases. Look for the statement to lead to volatility during afternoon trading if it hints at what the Fed's next move may be and when it will come. Market participants will be looking for any indication of a move to help boost economic activity. If the statement does not give us new information, mortgage rates will probably move little after its release.
Overall, it is difficult to label one particular day as the most important. Friday’s Retail Sales data is the most important economic report, but tomorrow’s FOMC meeting has the potential to cause plenty of movement in the markets and mortgage pricing also. And any day can turn volatile for bonds with a sizable rally or sell-off in stocks. This is certainly another week that continuous contact with your mortgage professional is highly recommended if you are 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... Lock if my closing was taking place between 21 and 60 days... Lock 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.
Empire Home Mortgage Inc. is a registered Mortgage Broker with the New York State and Florida Banking Departments and our loans are arranged through third party providers.
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