Wednesday’s bond market has opened relatively flat as market participants await today’s FOMC results. The stock markets are showing early gains with the Dow up 68 points and the Nasdaq up 2 points. The bond market is currently down 2/32 (2.04%), which should keep this morning’s mortgage rates close to yesterday’s levels.
There is no relevant economic data being posted today, but we do have two afternoon events taking place, one of which is likely to significantly move the markets. The less important of the two is the 5-year Treasury Note auction results at 1:00 PM ET. If this type of sale is met with a strong demand from investors, bond prices often rise during afternoon trading. However, I don’t think we will see too much of a reaction today because of the second event that is much more important to the broader markets.
That would be the adjournment of this week’s two-day FOMC meeting at 2:00 PM ET. Some market participants feel this is when the Fed will make their first increase to key short-term interest rates since 2006. Since even the Fed has indicated they expect a rate hike before the end of the year, suspense is building that it will come at this meeting. There is only one more meeting scheduled this year, so if it doesn’t happen today the odds rise sharply it will come at December’s meeting. It is my opinion that we will not see a move at this meeting. I think December is the earliest with a decent chance it will not come until early 2016. Look for plenty of reaction and volatility to the post-meeting statement during mid-afternoon trading.
The strong personal feeling that no rate hike will come from this meeting is the basis for shifting to a less conservative stance on mortgage rates. If we don’t see an increase and don’t get a strong indication from the post-meeting statement that one will come at the next meeting, I suspect the bond market will react favorably and mortgage rates will improve. That rally may be short-lived though, so be prepared to act if we do get the expected improvement and still floating a rate. Depending on how the markets react and what the statement actually says, I could shift back to a cautious stance on rates as early as this afternoon.
Look for an update to this report shortly after the markets have an opportunity to initially react and then stabilize after the announcement is made. There is key data scheduled for release tomorrow (initial GDP reading), but it will be addressed in this afternoon’s revision.