Wednesday, November 30, 2016 - Article by: James Brooks -
By James Brooks
The bond market is down 27/32 (2.39%), which should increase today's mortgage rates by .250 of a discount point.
today's economic data has affected bond trading some, but the bond market was in bad shape even before the first report hit the wires. The sell-off is being attributed to the OPEC agreement to cut oil production, which immediately pushed oil prices higher and means we will likely be paying more at the pump very soon. This was an inflationary hit to bonds. As consumer costs rise, inflationary pressures build in the economy. Long-term securities such as mortgage-related bonds don't respond well to signs of inflation because it erodes the value of the security's future fixed interest payments, making them less appealing to investors. The more immediate concern to mortgage shoppers is the fact that bond yields and mortgage rates may keep moving higher. This was and still remains a concern as was addressed in this report recently. With the benchmark 10-year Treasury Note yield above 2.25%, there is a current and significant threat of seeing 2.50% in the near future. Since mortgage rates tend to track bond yields, this would equate to higher rates for borrowers.
November's ADP Employment report kicked off today's economic news at 8:15 AM ET. It showed an increase of 216,000 private-sector payrolls this month. That is was a much higher figure than the 160,000 that was expected and hints at employment sector strength. This is not a governmental report, but it was enough of a variance from forecasts to lead many traders to believe Friday's governmental version will show strong numbers also. Since the results showed economic strength, we can consider the data bad news for bonds and mortgage rates.
Next up was October's Personal Income and Outlays data at 8:30 AM ET. The Commerce Department announced a 0.6% rise in income and a 0.3% increase in spending. The income reading was stronger than the 0.4% that was expected. Offsetting that though was the fact that analysts were calling for a 0.5% increase in spending. In other words, consumers earned more money to spend last month, but did not spend as much as many had thought. Therefore, we can give the report a mixed review for mortgage rates.
We also have an afternoon report to watch today when the Federal Reserve releases their Beige Book at 2:00 PM ET. This report is named simply after the color of its cover and details economic conditions by Fed region. That information is relied upon heavily during the FOMC meetings when determining monetary policy, so its results can influence bond trading and mortgage rates if it shows any noticeable changes from the last update. More times than not though, this report will not influence the markets enough to cause intra-day changes to mortgage rates, but the potential to do so does exist.
Tomorrow brings us the release of two pieces of data, but one is much more important to the markets than the other. Last week's unemployment figures at 8:30 AM ET will be first and the least important of the two. This report is expected to show that 253,000 new claims for unemployment benefits were filed last week, up from the previous week's 251,000. Rising initial claims are a sign of employment sector weakness, so the larger the number of claims, the better the news it is for mortgage rates. Although, because this is only a weekly reading we usually need to see a significant variance from forecasts for it to impact mortgage rates.
November's manufacturing index from the Institute for Supply Management (ISM) at 10:00 AM ET is the big news of the day. This index measures manufacturer sentiment and can have a considerable impact on the financial markets and mortgage rates. Current forecasts call for a small increase in sentiment from October to November. October's reading was previously announced as 51.9. A weaker reading than the expected 52.1 would be good news for the bond market and mortgage rates, especially if it moves real close to 50.0. A reading below that threshold means that more surveyed business executives felt business worsened during the month than those who felt it had improved. A sub-50 reading is considered a recessionary sign. The lower the reading the better the news it is for bonds because waning sentiment indicates a slowing manufacturing sector and makes broader economic growth less likely. This is one of the two highly important releases this week.
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.
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