Tuesday’s bond market has opened well in positive territory even though there was no major economic data posted this morning. The stock markets are mixed with the Dow up 12 points and the Nasdaq down 18 points. The bond market is currently up 16/32 (2.06%), which should improve this morning’s mortgage rates by approximately .250 of a discount point.
November’s Housing Starts was released at 8:30 AM ET this morning, revealing a 1.6% decline in new home construction starts. Analysts were expecting to see an increase in new starts, but an upward revision to October’s numbers closed the gap between the number of starts expected and what we actually saw. Still, the total number of new groundbreakings in November was lower than analysts were calling for, so we can consider the data favorable for bonds and mortgage rates. Further supporting that is a secondary reading that tracks the number of new permits issued that helps us predict future starts. It showed a much weaker number of new permits than forecasted, indicating that next month’s starts may disappoint also.
Tomorrow is the key day of the week with a highly important measure of consumer inflation and an afternoon full of Fed events. November’s Consumer Price Index (CPI) will be released at 8:30 AM ET tomorrow. It tracks inflationary pressures at the consumer level of the economy. Current forecasts show a decline of 0.1% in the overall reading and an increase of 0.1% in the core data that excludes more volatile food and energy prices. 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.
Tomorrow also has some significant FOMC events that are likely to be highly influential on the financial and mortgage markets. The two-day FOMC meeting that began today will adjourn at 2:00 PM ET tomorrow. It is widely expected that Ms. Yellen and company will not change key short-term interest rates at this meeting, but traders and analysts are anxious to get the Fed’s current economic forecasts and any indication of when they will make their first increase to key short-term rates. Also worth noting is that the meeting is ending earlier than the traditional 2:15 PM because it is one that will be followed by a press conference hosted by Fed Chair Yellen. The meeting will adjourn at 2:00 PM ET, forecasts will be posted at 2:00 PM and the press conference will begin at 2:30 PM. It is fairly safe to assume that all of that will lead to afternoon volatility in the markets and mortgage rates tomorrow.