Monday’s bond market has opened sharply higher due to heavy stock selling. The major stock indexes are showing significant losses during morning trading, driving the Dow lower by 380 points while the Nasdaq has lost 130 points. The bond market is currently up 30/32 (1.74%), which should improve this morning’s mortgage rates by approximately .250 of a discount point over Friday’s morning pricing.
There is nothing of importance scheduled for release today or tomorrow, leaving bonds to be influence by stock movement. That has worked to our advantage today as the selling in stocks has caused a flight-to-safety scenario that brings funds into bonds to escape the stock volatility. As long as stocks maintain this negative momentum, bonds could continue to benefit. The risk is that this type of improvement usually unwinds very quickly once stocks start to stabilize. In other words, enjoy the improvements now but please proceed cautiously if still floating an interest rate.
The rest of the week brings us the release of only two pieces of monthly economic data that are relevant to mortgage rates in addition to two Treasury auctions and semi-annual congressional Fed testimony. One of the economic reports is considered highly important to the markets, but the other is not likely to be a market mover. The Fed testimony has a decent probability of causing volatility in the markets and the auctions can lead to intraday changes to rates also. The Fed appearance is actually what is holding the current Lock recommendations in place.
Overall, expect Wednesday to be the key day of the week due to the congressional Fed testimony. Friday could be active for mortgage rates also due to the sales report. Stocks are probably going to also influence bond trading and mortgage pricing again this week. I am expecting this to be another busy week for the mortgage market, so please proceed cautiously if still floating an interest rate and closing in the near future.