Afternoon Markt Update

Thursday’s bond market has opened in negative territory with stocks showing early strength. The major stock indexes are posting strong gains this morning with the Dow up 181 points and the Nasdaq up 56 points. The bond market is currently down 15/32.

 

There was economic data posted this morning and it appeared to show results that were extremely favorable to the bond market and mortgage rates. Last week’s unemployment figures were released at 8:30 AM ET this morning, revealing a sizable jump in new claims for unemployment benefits. They showed that 374,000 initial claims for benefits were filed last week, up from 308,000 of the previous week. The headline number was great news for mortgage rates, but closer review gave other indications. Apparently a very large portion of that increase is being attributed to corrections in one state’s reporting that was having difficulties the past several weeks. Also, approximately a quarter of the increase is related to the government shutdown that is skewing the numbers. After the one-time or temporary influences are excluded, we are left with a modest increase in new claims that isn’t worthy of a significant reaction in the markets.

 

What is driving this morning’s stock strength and bond weakness is news out of Washington D.C. that hints at progress in the debt ceiling / default issue. There are reports that Republicans are considering a short-term increase in the debt ceiling to prevent a potential default on our debt October 17th. It is unclear whether that proposal includes strings or conditions that would pass the Democrat-controlled Senate and make its way to the White House for signature. But it is at least a sign of some progress in one of the two critical issues that Congress is dealing with right now. Simply the glimmer of hope has the stock markets pricing in a resolution in the immediate future. And that has drawn funds away from bonds and pushed this morning’s mortgage rates higher.

 

We also have today’s 30-year Bond auction to be aware of. Yesterday’s 10-year Note sale actually went better than I was expecting it to. By no means was it a strong auction though. For the most part, the indicators we use to gauge investor interest in the securities gave us mixed results with some showing average or slightly above results and others showing weaker levels of demand. Still, it wasn’t that bad and helps us to remain a little optimistic about today’s 30-year Bond auction. If investor demand was strong, we should see afternoon strength in the broader bond market and possibly a slight improvement to mortgage pricing. On the other hand, a clear weak level of interest could lead to more weakness in bonds and mortgage rates. Results will be posted at 1:00 PM ET, so any reaction will come during early afternoon trading.

 

Also posted yesterday afternoon was the minutes from the most recent FOMC meeting. They didn’t give us any significant surprises, but did show some interesting or informative tidbits. One was that only one voting FOMC member felt that the economy was strong enough to begin tapering while all others felt more strength was needed before making such a move. Another was the fact there was discussion of tapering only purchases in government securities and continue to buy mortgage-related purchases at the current pace. That was rumored to be a possibility and would likely soften the blow to mortgage rates when the Fed does make a move if they decide on this path. Overall though, there were no major revelations in the minutes.

 

The week closes tomorrow with another piece of relevant economic data actually being released. October's preliminary reading to the University of Michigan's Index of Consumer Sentiment is set to be posted just before 10:00 AM ET tomorrow. This index measures consumer willingness to spend and usually has a moderate impact on the financial markets. Since economic releases have been severely limited due to the government shutdown, this report will probably draw more attention than usual. Rising consumer confidence indicates consumers feel better about their own financial and employment situations, meaning they are more apt to make a large purchase in the near future. Because consumer spending makes up over two-thirds of the U.S. economy, any related data is watched closely. Good news for the bond market would be a sizable decline in consumer confidence. It is expected to show a reading of 74.5, down from September's final reading of 77.5.

 

I hope you took my advice to lock yesterday as you would have seen worst rates today. I am still suggesting to lock your rate at this point.