What the Markets Are Doing Today:
The bond and mortgage backed securities markets opened in negative territory while the stock markets opened in positive territory this morning.
- The Dow opened up 60 points from yesterday's close
- NASDAQ opened up 11 points from yesterday's close
- The 10 Year Treasury Bond opened down 4/32 from yesterday's close
- FNMA 30 Year 4.0% coupon opened down 5/32 from yesterday's close
The price of the FNMA 30-Year 4.0 coupon closed up 14/32 from its opening yesterday, but is currently down 6/32. Remember, on MBSs, as the price goes down, the yield goes up - and so do mortgage interest rates. Conversely, as the price goes up, the yield goes down - and mortgage interest rates go down with it. Despite being down in trading this morning, I expect that mortgage rates will improve by 0.125 - 0.25 in discount points today because of the improvements in MBS yesterday.
Economic Reports Being Released Today:
- Goods and Services Trade Balance Report for April - This report revealed a trade deficit of $27.6 billion, and is slightly worse than forecasted However, this data is not considered to be highly important to the bond markets and will have no impact on this morning's trading.
Important News of the Day:
Ben Bernanke, Chairman of the Federal Reserve, stated yesterday that he is encouraged by plans of the major banks to raise capital after the government stress tests results were released. He also indicated that the worst of the world wide recession may be over.
The Treasury Budget report for April is due out later today. This report typically shows a sizeable surplus from tax receipts. However, the fiscal stimulus package and the various bailout plans have pushed federal spending up significantly. The budget deficit now stands at $956.8 billion, and is double that of last year's at this time. Foreign investors typically do not like large deficits, and the continued increases could shut off foreign investment of bonds and mortgage backed securities, which will result in lower bond prices and higher yields and mortgage rates.
This week will be very busy next week with many economic reports scheduled for release. Monday and Tuesday will be fairly quiet, but there will be a couple of key inflation readings, an important measurement of consumer spending and a reading on industrial output in the later part of the week. That means the middle and latter parts of the week will probably be very active with several key reports being posted over three trading days. Look for more details on next week's economic data releases and events on my Weekly Mortgage Market Watch.
What Happening With Mortgage Rates Today:
Moderate Volatility. Overall, it likely will be a pretty active week for mortgage rates. Look for the stock markets to have a major influence on bond trading. I expect to see several noticeable changes in rates this week, and would not be surprised to see multiple intra-day revisions as well. Accordingly, I would strongly recommend maintaining contact with your mortgage professional the next several days if you're still floating an interest rate.
There's still continued downward pressure on MBS prices (which means higher yields and mortgage rates). The supply of bonds and T-bills on the market continues to weigh heavily on the market. The government expects to issue between $2.7 trillion and $4.2 trillion in bonds over the next two years to pay for the massive debt obligations. That in and of itself may give rise to the concerns for inflation.
No one knows how long rates will stay down this time or if they'll go any lower. In addition, the spring and summer home buying season is upon us. Mortgage rates historically climb this time of year before peaking in July or August. If you haven't locked in a rate yet, then you may want to consider doing so. Floating is making less sense now as the ever increasing massive government debt as well as the spring and summer home buying season could soon drive mortgage rates up even more. So, if you like the rate that you are being offered today, then there's nothing wrong with locking in.
My Interest Rate Lock Advice for Today:
If I were considering financing/refinancing a home, I would...
- Lock if my closing was taking place within 7 days
- Float if my closing was taking place within 8 and 30 days
- Float if my closing was taking place between 31 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 any or all other borrowers. See today's mortgage rates at www.LewCorcoran.com/RateSheet.
East Bridgewater, MA 02333
Lew Corcoran, ASP®, IAHSP, IAHSP-CB