Mortgage Blog

Recommendation:  LOCK

Tuesday's bond market has opened in positive territory despite the release of much stronger than expected housing news. The stock markets are showing gains with the Dow up 18 points and the Nasdaq up 8 points. The bond market is currently up 7/32, which should improve this morning's mortgage rates by approximately .125 of a discount point.

February's Housing Starts was released early this morning, showing a surprising jump of 9.0% in new housing starts. This data hints that the housing sector was much stronger than expected last month, which is bad news for bonds. However, another portion of the report showed that new permits for single-family homes fell to a nine-year low. This indicates that next month's starts may be quite weak, which would be good news for bonds.

The FOMC meeting began today and will adjourn tomorrow afternoon. It is expected keep key short-term interest rates unchanged. However, what will likely cause volatility in the markets is the post-meeting statement. Traders are hoping to pick up an indication of future Fed moves, particularly if the Fed expects to cut rates anytime soon. The meeting is the second of four meetings this year that last two days and will adjourn at 2:15 PM ET tomorrow. Therefore, look for afternoon changes in rates Wednesday.

The next economic data comes Thursday when the Conference Board will post its Leading Economic Indicators (LEI) for February. This index attempts to measure economic activity over the next three to six months. Current forecasts are calling for a 0.3% decline, indicating that economic activity will likely slow in the coming weeks. This would be good news for the bond market and mortgage rates.

randy.reed@mpspecialists.com

Recomendation: LOCK

This week brings us the release of five economic releases for the bond and mortgage markets to digest along with a 10-year Treasury Note auction. There is relevant economic news scheduled for release each day except tomorrow and Wednesday. Three of the five reports are considered to be of high importance to the markets. This means that we will likely see a noticeable move in rates several days of the week.

The first report is February's Retail Sales data early Tuesday morning. This report is extremely important to the financial markets because it measures consumer spending. Since consumer spending makes up two-thirds of the U.S. economy, data that is related to spending usually has a big impact on the financial markets. This month's report is expected to show an increase in sales of approximately 0.3%. If we see a smaller than expected increase, the bond market should rise and mortgage rates will likely fall. If it reveals a larger increase, I expect to see bond prices fall and mortgage rates rise Tuesday morning.

The Labor Department will post February's Producer Price Index (PPI) early Thursday morning. This index measures inflationary pressures at the producer level of the economy. There are two portions of the index- the overall reading and the core data. The core data is more important and watched more closely because it excludes more volatile food and energy prices. If the index shows a large increase, inflation concerns may rise, making long-term investments such as mortgage-related bonds less attractive to investors. This would lead to higher mortgage rates Thursday morning. Current forecasts are calling for a 0.4% rise in the overall reading and a 0.2% increase in the core data.

There are three pieces of data scheduled for release Friday. The first is February's Consumer Price Index (CPI), which is similar to Thursday's PPI except this index tracks prices at the more important consumer level of the economy. It will also have two readings for the markets to digest. It is expected to show a 0.3% rise in the overall readings and a 0.2% increase in the core data.

February's Industrial Production report will be posted at 9:15 AM ET. This report measures manufacturing sector strength by tracking output at U.S. factories, mines and utilities. It is expected to show a 0.3% increase during January. As long as this report does not exceed forecasts by too much it will probably have only a minor influence on the mortgage market Friday.

The last release of the week is not a government-issued report. The University of Michigan's Index of Consumer Sentiment for March is expected to be posted at 9:45 AM. This index gives us a measurement of consumer willingness to spend. If confidence is rising, then consumers are more apt to make large purchases. This helps fuel consumer spending and economic growth. A drop in confidence will probably hurt the stock markets and boost bond prices, leading to lower mortgage rates. If the index rises, indicating that confidence is rising and spending is likely to continue, we may see mortgage rates move higher late Friday morning. It is expected to show a reading of 90.5, down from February's 91.3.

Overall, it will likely be another active week in the mortgage market. Tuesday, Thursday or Friday can all be labeled as the most important day of the week. Any of the three can lead to a significant change to mortgage pricing, but I am thinking Tuesday or Friday will likely brings us the biggest moves. The Treasury auction is scheduled for Tuesday, but its results will not be posted until 1:00 PM ET. If investor demand was high, we may see bonds rally during afternoon trading, however, weak demand could lead to selling an increase to mortgage rates. Generally speaking, this week is definitely a good one to maintain contact with your mortgage professional if an interest rate has not been locked yet.

randy.reed mpspecialists.com

Recomendation: Lock

This week brings us the release of four factual economic reports to be concerned with along with the minutes from the last FOMC meeting. Two of the three reports are considered to be only moderately important while one is of low importance to the bond and mortgage markets. Still, the last report of the week is one of the single most important we see each month an d has the potential to create a great deal of volatility in the markets and rates.

The week's first two reports come Tuesday morning. The first is the revised Productivity index for the 4th Quarter of last year. The preliminary reading posted last month showed a 3.0% jump in worker output. Analysts are expecting to see a downward revision to 1.7%, meaning that employee productivity was weaker than previously announced. Employee productivity is watched closely because a higher level of output per hour is believed to mean that the economy can expand without inflation concerns.

January's Factory Orders will be posted late Tuesday morning, which will give us a measurement of manufacturing sector strength. This data is similar to last week's Durable Goods, except this report covers orders for both durable and non durable goods. Current forecasts are calling for a drop in new orders of approximately 4.0%. A larger than expected drop would be good news for the bond m arket and could lead to an improvement in mortgage rates Tuesday morning.

The Fed Beige Book will be posted Wednesday afternoon. This report details economic activity throughout the country by region. The Fed relies heavily on this data during their FOMC meetings, so look for a potential reaction during afternoon trading Wednesday. It probably will not cause a major sell off in the stock or bond markets, but could cause enough movement in bond prices to possibly improve or worsen mortgage rates slightly if it reveals any significant surprises.

Friday morning, January's Goods and Services Trade Balance report will be posted. This data gives us the size of the U.S. trade deficit during January. It generally isn't a big mover of bond prices, but can affect stock prices and the value of the U.S. dollar versus other currencies. However, I expect this report to have virtually no impact on mortgage rates Friday due to the importance of the day's second release.

The second report scheduled for Friday is one of the single most important monthly reports we see. The Labor Department will release February's Employment report at 8:30 AM ET Friday. Some of the important portions of the report will give us the unemployment rate, number of new jobs added or lost and the average hourly earnings reading. The best combination for the bond market and mortgage rates would be an increase in the unemployment rate, a large drop in payrolls and little or no increase in earnings. Current forecasts are calling for no change in the unemployment rate of 4.6% and approximately 100,000 new jobs added.

March 2, 2007

Recomendation: Lock

Mortgage bonds are trading slightly higher as stocks trade lower. Some bad news from Dell, which saw it's fourth-quarter profit plunge 33% lower than a year ago levels, has applied selling pressure to stocks so far this morning.

The University of Michigan ’s Consumer Confidence Index for February was reported at 91.3, which was lower than expectations of 93.3. Bonds had little reaction to release.

Since there aren't any high impact reports scheduled for release until next Friday's Jobs Report, Bonds will likely continue to be influenced by stocks. With this in mind, we you could continue to Float because there is a chance stocks may continue to move lower, which would benefit Bonds. But, be aware that the Bond is also very overbought and ripe for a reversal lower hence why I personally would "lock" in an interest rate.