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Friday’s bond market has opened in positive territory as yesterday’s hope of progress in averting a U.S. debt default quickly dwindled late in the day. The stock markets are not taking the same reverse course as bonds, extending yesterday’s Dow gain of 323 points. The Dow is currently up 53 points while the Nasdaq has gained 9 points. The bond market is currently up 7/32, which with yesterday’s late strength should improve this morning’s mortgage rates by approximately .250 – .375 of a discount point is comparing to Thursday’s early pricing.
A strong 30-year Bond auction yesterday helped start the rebound in the broader bond market. Several indicators we use to gauge investor interest in the sale showed fairly high levels of demand. That was a bit surprising, but did lead to the bond market almost recovering all of yesterday’s morning losses. The move was enough to cause many lenders to revise rates slightly lower during late afternoon trading yesterday, while others may have waited for this morning’s opening to reflect those improvements. Still, the strong auction indicates there is still a decent appetite for long-term U.S. debt securities. That could bode well for mortgage bonds in the near future also.
The late news that Senate Democrats may not be as willing to agree to a short-term spending increase that averts a default surprised many traders and is helping to boost bond prices this morning. The lack of a deal to end the government shutdown and to raise the debt ceiling so we can continue to pay bills after October 17 has helped push finds into bonds as a safe-haven. When news broke yesterday that House Republicans were rumored to be proposing a short-term patch for the debt ceiling, optimism rose that progress was being made. That caused some of those safe-haven funds to move away from bonds and led to yesterday’s sizable stock rally. Now that it appears such a deal may not pass the Senate, bonds are again benefiting from the uncertainty. The bad news is that is the tone changes direction again, we could see another negative day in bonds and increases in mortgage rates.
We did have some relevant economic data posted this morning from a non-governmental source that was not affected by the shutdown. Late this morning, the University of Michigan posted their Index of Consumer Sentiment for October, announcing a reading of 75.2. This was a decline from September’s final reading of 77.5 but higher than the 74.5 that was forecasted. The waning level of consumer sentiment about their own financial and employment situations is good news because it means that consumers are less likely to make a large purchase in the near future. However, since the reading indicated a stronger level of confidence than what was expected, we need to consider the data neutral-to-slightly negative for the bond market and mortgage rates.
Next week does have a couple of events that will still take place even if the government shutdown is not resolved yet. Due to the Columbus Day holiday Monday, the bond market will be closed as will most banks. However, the stock markets will be open for trading. There is no early close for either today ahead of the holiday.