Wednesday’s bond market initially opened in positive territory, but has since fallen well into negative ground. The stock markets were showing early strength also however, instead of turning south the major indexes have extended those gains when bonds moved lower. The Dow is currently up 104 points while the Nasdaq has gained 15 points. The bond market is currently down 12/32, but dues to strength late yesterday we should see little change in this morning’s mortgage rates if comparing to yesterday’s early pricing. Unfortunately, this morning’s selling has erased a sizable rally in mortgage-related bonds during afternoon trading yesterday. How much of an increase you will see in this morning’s pricing depends on the size of the downward revision your lender made late yesterday. The net difference should be minimal from Tuesday’s morning rates.
The National Association of Realtors gave us their Existing Home Sales report late this morning. They announced an increase of 0.6% in sales of existing homes that pushed the number of sales to their highest level since November 2009. That indicates housing sector strength that makes the data negative for the bond market and mortgage rates. However, it was close to forecasts and had little impact on this morning’s trading or mortgage rates.
What helped to initially boost bond prices were prepared comments by Fed Chairman Bernanke to the Joint Economic Committee of Congress. His first words caused bonds to move higher as they indicated that inflation was not a concern and that the Fed was ready to slow their current bond buying program if needed. The lack of a specific estimate when that could begin led many to believe that it was not in the foreseeable future. Since the Fed buys bonds that affect mortgage rates, this was welcomed news in the bond and mortgage markets. However, as the Q&A went on, Chairman Bernanke was pressed for a better answer and his replies appear to have contradicted what was originally taken from his prepared statement. The indication that such a move could come as early as Labor Day or during the 4th quarter caused bond buying to turn into selling. That erased not only the morning gains that appeared likely to improve rates another .250 of a discount point on top of yesterday’s late rally, but also yesterday’s gains altogether. That is a change of approximately .625 of a discount point from what this morning’s rate were going to look like and what are actually being posted.
There is something else scheduled for today that is likely to influence the markets and mortgage rates. The minutes of the last FOMC meeting will be released tomorrow afternoon. Market participants will be looking for how Fed members voted during the last meeting and any comments about inflation concerns in the economy and economic growth. The goal is to form opinions about the Fed’s next move regarding interest rates and their current bond-buying program (QE3), although this morning’s comments should suffice with that. The minutes be released at 2:00 PM ET, so if there is a market reaction to them it will come during afternoon trading.
Besides the weekly unemployment update from the Labor Department early tomorrow morning (expected to show that 348,000 new claims for unemployment benefits were filed), we also will get April’s New Home Sales data at 10:00 AM ET. It gives us a similar measurement of housing sector strength and future mortgage credit demand as today’s Existing Home Sales report did, but tracks a much smaller portion of housing sales. Actually, it is the least important release of the week and probably will not have much of an impact on mortgage pricing unless it shows a sizable variance from forecasts. It is expected to show gains in sales from March’s level, meaning the new home portion of the housing sector also strengthened last month.