Tuesday, December 23th
Tuesday’s bond market has opened in negative territory following mixed economic news. Stocks are showing minor gains of 58 points in the Dow and 10 points in the Nasdaq. The bond market is currently down 5/32 (4.17%), which with some weakness late yesterday should cause this morning’s mortgage rates to be higher by approximately .125 - .250 of a discount point.
5/32
Bonds
30 yr - 4.17%
58
Dow
48,421
10
NASDAQ
23,439
Trailing 90 Days - National Average
Medium
Negative
The first of this morning’s batch of shutdown-delayed economic data was the initial 3rd Quarter Gross Domestic Product (GDP) at 8:30 AM ET. It revealed the U.S. economy grew at an annual pace of 4.3% during the July through September months. This was much stronger than the 3.2% that was anticipated. In a double whammy, a secondary reading in the report that is related to inflation was also much stronger than predicted. These readings show economic strength and rising inflation, making the report bad news for bonds and mortgage rates. The age of the data is likely preventing a more noticeable reaction, but it did erase early morning bond gains.
Medium
Positive
Today’s second release was October’s Durable Goods Orders report that showed a 2.2% decline in new orders for big-ticket products. This was weaker than the 0.4% increase that was expected, but since this particular data is known to be quite volatile from month to month, we haven’t seen a strong positive reaction in the bond market. A secondary reading that excludes more costly and unstable transportation orders (airplanes, etc) came in up 0.2%. The headline number allows us to label the report favorable for rates, but as with the GDP reading, the age of the data makes the report less relevant than it usually is.
Medium
Neutral
Also posted this morning was the Industrial Production report for October and November. It revealed a 0.1% decline in output at U.S. factories, mines and utilities in October but a 0.2% rise in November. These readings were close to forecasts and didn’t draw much attention this morning. Therefore, we can consider the news neutral for rates.
Medium
Unknown
We also have the results of today’s 5-year Treasury Note auction to watch this afternoon. They will be announced at 1:00 PM ET, making it an early afternoon event for rates. Good news for rates would be a strong demand from investors, indicating a decent appetite for mid-term securities. These notes aren’t really relevant to mortgage rates, but they did give us an idea of investor interest in the bond market. If there is a reaction to the results announcement, it should be shortly after the details are available and likely will be minor. This scenario will be repeated tomorrow when 7-year Notes are sold.
Medium
Unknown
Tomorrow’s only data we will be watching is the weekly unemployment update at 8:30 AM ET. It is expected to show 225,000 new claims for jobless benefits were made, up slightly from the previous week’s 224,000 initial filings. Rising claims are a sign of weakness in the employment sector and bonds tend to thrive in weaker economic conditions. It also allows the Fed to be more aggressive with their future rate cuts. Accordingly, good news for bonds and mortgage pricing would be a sizable increase in new claims.
Low
Unknown
We have a shortened day in the markets tomorrow ahead of Thursday’s Christmas holiday. Stocks will trade until 1:00 PM tomorrow while bonds will go until 2:00 PM ET. The markets will reopen for regular trading Friday morning, but it is highly likely that trading will be light or thin as many traders are home for the holiday. This simply means that we shouldn't be too excited about an improvement in rates or concerned about an increase since moves are exaggerated by the light volume and will be corrected when regular volume returns next Monday.
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.