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Monday’s bond market has opened in positive territory following mixed economic data and despite early stock strength. The major stock indexes are showing sizable gains during early trading with the Dow up 165 points and the Nasdaq up 33 points. The bond market is currently up 7/32, which should improve this morning’s mortgage rates by approximately .125 of a discount point over Friday’s morning pricing.
There were two pieces of economic data posted this morning that were relevant to the mortgage market. The first was revised 3rd Quarter Productivity numbers at 8:30 AM ET. They showed a noticeable upward revision in worker output last quarter that exceeded forecasts. The preliminary reading indicated a 1.9% annual rate and forecasts were calling for 2.8% while both were short of the actual 3.0% that was posted this morning. This means workers produced more per hour than previously thought, making the data good news for the bond market and mortgage rates.
Today’s second release was November’s Industrial Production report at 9:15 AM ET that revealed a 1.1% increase in production at U.S. factories, mines and utilities. This was much stronger than the 0.4% that was predicted and the 0.1% increase that was October’s revised level, indicating the manufacturing sector may have been strong than many had thought last month. That makes the data negative for the bond and mortgage markets. Fortunately, this data is considered to be only moderately important or it could have had a much bigger impact on this morning’s pricing.
The rest of the week has seven more monthly or quarterly economic reports scheduled for release in addition to some key Fed events and a couple of Treasury auctions that could potentially affect mortgage rates. There is data set for release every day of the week, but the more important events will take place or be posted the middle days. Still, with the majority of the days having multiple reports or events scheduled, there is a good chance of seeing plenty of movement in mortgage pricing this week.
Tomorrow has the single most important report of the week with November’s Consumer Price Index (CPI) being posted at 8:30 AM ET. It is similar to last Friday’s Producer Price Index, except it tracks inflationary pressures at the more important consumer level of the economy. Current forecasts call for an increase of 0.1% in both the overall and core data readings. This data is one of the most watched inflation indexes, which is extremely important to long-term securities such as mortgage related bonds. Rising inflation erodes the value of a bond’s future fixed interest payments, making them less appealing to investors. That translates into falling bond prices and rising mortgage rates. Therefore, weak readings would be favorable for the bond market and mortgage shoppers.
Overall, Wednesday is the key day of the week due to the FOMC meeting results, revised economic forecasts and press conference with Chairman Bernanke. Tomorrow’s report is also key to the bond market, but I think we will see the most volatility in the markets and mortgage rates Wednesday. Despite the GDP reading, I believe Friday is the best candidate for calmest day. Generally speaking, this is probably going to be a pretty active week for the bond and mortgage markets. It is likely that I will remain very cautious towards rates until the benchmark 10-year Treasury Note yield breaks above 2.90% for more than a few minutes to see if that truly is a strong resistance level or if it will continue to rise above.