AM Market Update

Tuesday’s bond market has opened in positive ground even though stocks are showing gains also. The Dow is currently up 48 points while the Nasdaq has gained 22 points. The bond market is currently up 5/32, which should improve this morning’s mortgage rates by approximately .125 of a discount point.

Tomorrow is going to be a very interesting day that will likely be quite volatile for the financial and mortgage markets. It starts with the release of the most relied upon measurement of economic growth at 8:30 AM ET. That report is the preliminary reading of the 2nd Quarter Gross Domestic Product (GDP). It is the total of all goods and services that are produced in the U.S. on a quarterly basis and usually has a great deal of influence on the financial markets. This reading is arguably the single most important report we get regularly. Current forecasts are estimating that the economy grew at a 1.1% annual rate during the second quarter. A faster pace will probably hurt bond prices, leading to higher mortgage rates tomorrow morning. But a smaller than expected reading would likely fuel a bond market rally and lead to lower mortgage pricing since it would indicate the economy was not as strong as many had thought.

The fifth FOMC meeting of the year is a two-day event that began today and will adjourn at 2:00 PM ET tomorrow. This is not a meeting that will be followed by a press conference with Chairman Bernanke. It is expected to yield no change to key interest rates, but there is speculation that the post meeting statement may clarify the Fed’s position or estimation of when they will begin to slow their current $85 billion monthly bond buying program (QE3). This topic has caused a firestorm in the markets multiple times over the past two months, and not always logically. Therefore, it is difficult to make a prediction of what to expect. Theoretically, we would like to hear something that would hint the Fed will not start tapering their purchases in September as many analysts currently believe. One would think that since the current consensus had September as the beginning, hearing it again would not have a negative impact on the bond market. Unfortunately, logic and history does not seem to be a good indicator on how the markets will react to such news recently. That leaves us little to base a prediction on, other than to hold our breath and hope sanity quickly returns to the markets.

Regardless, it is safe to assume that it will be an active day in the markets and mortgage rates tomorrow. Key economic data in the morning and then the FOMC meeting in the afternoon significantly raises the likelihood of seeing multiple intra-day revisions to mortgage rates tomorrow. The benchmark 10-year Treasury Note yield is currently at 2.58%, which is above one threshold of 2.49% but well below a significant level of 2.95%. I believe that by tomorrow afternoon’s close we will be either below 2.49% or much closer to the 2.95% than we are today. Since mortgage rates follow bond yields, the latter would be bad news for mortgage shoppers. There is a lot to potentially gain by floating an interest rate into tomorrow’s events, however, there is also plenty of risk. Therefore, please be cautious and maintain contact with your mortgage professional if still floating an interest rate.

 

I am still suggesting locking your rate because with tomorrow’s volatility it will be a roll of the dice.