Wednesday’s bond market has opened in negative territory as investors prepare for today’s Fed events. The stock markets are starting the day in positive territory with the Dow up 66 points and the Nasdaq up 20 points. The bond market is currently down 6/32 (2.08%), but we should still see a slight improvement in this morning’s mortgage rates if comparing to Tuesday’s early pricing due to strength yesterday afternoon.
November’s Consumer Price Index (CPI) was posted at 8:30 AM ET this morning. It showed a 0.3% drop in the overall reading and a 0.1% increase in the more important core data that excludes volatile food and energy prices. The overall reading was weaker than expected while the core reading pegged forecasts. They both indicate inflation remains subdued at the consumer level of the economy, so we can consider the data slightly positive for bonds and mortgage rates.
Today’s mortgage-relevant activities did not end with this morning’s CPI release. We also have a couple of Fed events this afternoon that are likely to cause a significant amount of volatility in the markets and possibly mortgage rates. The two-day FOMC meeting adjourns at 2:00 PM ET, which will be followed by a post-meeting statement. That is also when we will get the Fed’s revised economic forecasts on major indicators such as the unemployment rate and key inflation readings. And that will be followed by a 2:30 PM ET press conference hosted be Fed Chair Janet Yellen.
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. Any surprises in the post-meeting statement language or press conference could lead to a significant rally or sell off in stocks and bonds, causing mortgage rates to move this afternoon also. There is still room for bond and mortgage rate improvement in my opinion, but it seems like traders are expecting extremely favorable news. The problem with having good news built into current pricing is that hearing the favorable news usually has less of a positive impact on rates than not hearing it will have a negative impact. In other words, less to gain with more to risk. Therefore, please proceed cautiously if still floating an interest rate and closing in the immediate future.
We will update this report and address tomorrow’s economic releases shortly after the markets have an opportunity to react to this afternoon’s events.