Friday’s bond market opened in positive territory due mostly as a result of President Obama’s overnight announcement that the U.S. will assist with the latest issues in Iraq. The stock markets are showing minor gains during early trading with the Dow up 25 points and the Nasdaq up 6 points. The bond market is currently up 10/32, which with strength late yesterday should improve this morning’s mortgage rates by approximately .250 of a discount point if comparing to Thursday’s morning rates.
Last night’s Iraq news has created a flight to safety where investors move funds into safe government securities. This is common when global turmoil flares up as stocks tend to suffer during those times. News yesterday that a Ukrainian military jet was shot down helped fuel a bond rally that pushed the 10-year Treasury Note yield right through the 2.44% wall and caused many lenders to improve pricing before closing. The 10-year yield closed at 2.41% and the overnight Iraq news has driven it down to 2.38% this morning. Unfortunately, mortgage rates haven’t improved at the same pace as bonds have, at least not yet. Historically though, these flight to safety rallies are usually short-lived and unwind fairly quickly. Still, this could be a windfall for mortgage shoppers, especially with several geopolitical and financial crises taking place simultaneously. However, it does come with a warning about a potential quick reversal.
Today’s only economic news was the 3rd Quarter Employee Productivity and Costs data at 8:30 AM ET. It revealed a 2.5% increase in worker productivity and a 0.6% rise in labor costs. The productivity number was higher than forecasts while the labor cost number fell short of expectations. That makes both readings favorable for bonds and mortgage rates. However, this data is not considered to be that important or influential on the markets, preventing too much of a reaction to this morning’s news.
Next week doesn’t have a large number of relevant economic reports set for release, but most of what is scheduled can influence mortgage rates. Besides a key consumer spending report and a highly important inflation reading, there are also a couple of Treasury auctions that will probably have an impact on bond trading and possibly mortgage pricing. None of the week’s worthwhile events take place until Wednesday, so we can expect geopolitical events and stock movement to have the biggest effect on trading early in the week.