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Thursday’s bond market has opened in positive territory with stocks relatively calm and no major economic data in tap today. The major stock indexes are mixed with the Dow up 25 points and the Nasdaq down 3 points. The bond market is currently up 9/32, which will likely improve this morning’s mortgage rates by approximately .125 of a discount point.
Besides this morning’s economic news, we also have the Senate confirmation hearing for Fed Chairman Bernanke’s replacement. Current Vice Chairman Janet Yellen was nominated to fill Mr. Bernanke’s shoes when his current term expires January 31, 2014. The hearing this morning likely isn’t going to bring any significant surprises, especially since her prepared statement was released yesterday. If something important enough to affect the markets is said, it will come from the Q&A portion of the proceeding. Generally speaking, Ms. Yellen is considered to be fairly accommodating in terms of keeping stimulus programs in place and will likely prefer to start raising key short-term interest rates later than sooner. In other words- bond market friendly. Any comments made to contradict that theory is more likely to negatively impact bonds and mortgage rates than a supporting statement will improve rates, at least today.
The Labor Department gave us the first of this morning’s three pieces of economic data. They announced that 339,000 new claims for unemployment benefits were filed last week. This was higher than forecasts of 330,000 new claims. Also, the previous week’s total was revised upward from 336,000 to 341,000 initial claims, indicating the employment sector was weaker than thought both weeks. Dissecting the data shows that analysts were expecting to see new claims fall by 6,000 but actually only slipped 2,000 and that was from a higher level of the previous week. That makes the data slightly favorable to the bond market and mortgage rates because it hints at weaker economic conditions.
September’s Goods and Services Trade Balance was posted early this morning also, revealing a $41.8 billion trade deficit during the month. That exceeded forecasts of $39.1 billion, however, it was not enough of a variance from a very minor report for the results to impact this morning’s bond trading and mortgage pricing.
The final report of the morning was the 3rd Quarter Productivity reading. It came in at a 1.9% annual rate, nearly matching forecasts of 2.0%. That makes the headline reading neutral for the bond market although a secondary reading that tracks labor costs showed a moderate decline when it was expected to rise. (-0.6% vs +0.8%). That will allow us to treat the data as slightly favorable for mortgage rates since weakening labor costs reduces wage-inflation concerns in the markets.
Yesterday’s 10-year Treasury Note auction actually went pretty well with several benchmarks we use to gauge investor demand showing a high level of investor interest in the securities. That is good news and helped boost prices in the broader bond market during afternoon trading yesterday and contributed to an afternoon improvement in mortgage rates. It also helps us to be optimistic about today’s 30year Bond auction. If we get similar results from today’s sale, it is possible to see further improvements to bond prices and mortgage pricing later today.
October’s Industrial Production report is tomorrow’s only economic data that is likely to affect mortgage rates. It will be posted at 9:15 AM ET, giving us a measurement of manufacturing sector strength by tracking output at U.S. factories, mines and utilities. It is expected to reveal a 0.1% increase in production, indicating little strength in the manufacturing sector. Stronger levels of production would be considered bad news for the bond market and mortgage rates, but as with today’s data, this is not expected to greatly influence the markets. Therefore, it will likely take a sizable variance from forecasts for it to have a noticeable impact on mortgage pricing.