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Tuesday’s bond market has opened up slightly despite early strength in stocks and no important economic news. The major stock indexes are showing fairly sizable gains with the Dow up 102 points and the Nasdaq up 26 points. The bond market is currently up 2/32 (2.95%), which should improve this morning’s mortgage rates by approximately .125 of a discount point over yesterday’s morning pricing.
A contributing factor to this morning’s positive opening in bonds was last night’s Senate confirmation of current Fed Vice Chair Janet Yellen to the position of Fed Chairman when Ben Bernanke’s term ends at the end of this month. She will be the first ever female Fed Chairman, but more importantly, she is thought to be a bond-friendly replacement to current Chairman Bernanke. The general consensus is that she would prefer to take a slower and softer approach to easing the Fed’s stimulus programs as the economy strengthens. That should extend the current conditions that have helped keep bond yields and mortgage rates low, at least compared to other potential candidates.
November’s Goods and Services Trade Balance was today’s only economic data and it isn’t even much of a concern to the mortgage market. It showed that the U.S. trade deficit fell to $34.3 billion in November from October’s revised $39.3 billion. That was much lower than the $40.4 billion that was expected and the smallest it has been since October 2009. Still, its impact on today’s bond trading and mortgage pricing has been fairly minimal.
There is no relevant economic news set for release tomorrow other than possibly a private-sector employment-related report from payroll processor ADP. We do have the first of this week’s two Treasury auctions that have a good possibility of affecting mortgage rates. Tomorrow’s sale has 10-year Notes being sold while 30-year Bonds will be auctioned Thursday. The 10-year sale is the more important of the two as it will give us a better indication for demand of mortgage-related securities. If the sale was met with a strong demand from investors, we should see the bond market move higher during afternoon trading tomorrow. But a lackluster interest from buyers, particularly international investors, would indicate a waning appetite for longer-term U.S. securities and lead to broader bond selling after results are posted at 1:00 PM ET. The selling in bonds would result in afternoon upward revisions to mortgage rates.
Also tomorrow is the release of the minutes from the last FOMC meeting. They will give market participants insight to the Fed’s thinking and concerns regarding the economy, inflation and monetary policy. It is one of those pieces of information that may cause a great deal of volatility in the markets or be a non-factor, depending on what the minutes show. They will be released at 2:00 PM ET, so they won’t affect the markets or mortgage rates until afternoon hours. I don’t suspect this particular set of minutes will cause too much concern or excitement because the last FOMC meeting was followed by revised Fed forecasts and a press conference by Chairman Bernanke. Although, the meeting did yield the first reduction in the Fed’s current bond buying program (QE3). Therefore, analysts will be looking for any tidbits that could help predict when the next reduction will be made.