Wednesday’s bond market has opened in negative territory yet again as investors prepare for today’s major FOMC events. The stock markets are showing moderate gains with the Dow up 64 points and the Nasdaq up 15 points. The bond market is currently down 9/32 (2.30%), but due to strength late yesterday we should see just a slight increase in this morning’s mortgage pricing.
November’s Housing Starts report was posted at 8:30 AM ET this morning. The Commerce Department announced a 10.5% jump in new housing groundbreakings. This was stronger than what analysts were expecting to see, hinting at housing sector strength. However, this report is not considered to be highly important and comes on a Fed day, so it has had little impact on this morning’s rates.
The second report of the morning came at 9:15 AM ET when November’s Industrial Production data was released. It revealed a 0.6% decline in output at U.S. factories, mines and utilities. Forecasts were calling for a 0.1% decline, indicating the manufacturing sector may be softer than many had thought. That makes the data good news for mortgage rates. Unfortunately, this report doesn’t carry a high level of importance in the markets either. Therefore, we are not seeing it have much influence on this morning’s trading.
This week’s two-day FOMC meeting will adjourn at 2:00 PM ET today and is widely expected to yield a .25% increase in key short-term interest rates. Also at 2:00 PM will be the release of the Fed’s revised economic projections, followed by a press conference with Fed Chair Yellen at 2:30 PM ET.
An increase of .25% should not surprise anyone. There is a very small chance that the Fed will wait for the next meeting to make a move, but the markets are expecting it to happen today. So what can we expect after the 2:00 PM announcement? Let’s tackle the easy one first. That would be the Fed not making a move yet. I am fairly certain that the bond market would rally and we would see a sizable improvement in mortgage rates. The more complicated scenario is if the Fed does announce a .25% rate increase. I believe that there is a good chance of seeing an initial negative knee-jerk reaction in bonds that would push rates higher if that is the move today. However, shortly after we may see a reversal that would lead to rates starting a downward trend. This is obviously all speculation at this point. Regardless of what happens, I am expecting an interesting couple of days for the financial and mortgage markets.
There is a high probability of seeing a good amount of volatility in the markets and mortgage pricing this afternoon. Therefore, please proceed carefully of still floating an interest rate and closing in the near future. We will update this report shortly after the events have taken place and the markets have had an opportunity to digest their results.