Monday, January 6th
Monday’s bond market has opened in negative territory despite favorable economic news. Stocks are starting the week with strong gains, pushing the Dow up 310 points and the Nasdaq up 322 points. The bond market is currently down 6/32 (4.62%), which should cause an increase of approximately .125 - .250 of a discount point in this morning’s mortgage rates.
8/32
Bonds
30 yr - 4.62%
310
Dow
43,042
322
NASDAQ
19,944
Trailing 90 Days - National Average
Low
Positive
This week’s economic calendar started this morning with the release of November's Factory Orders data at 10:00 AM ET. It showed that news orders at U.S. factories for durable and non-durable goods fell 0.4% when most analysts were expecting to see a 0.3% decline. This is a sign of weakness in the manufacturing sector that makes the data good news for bonds. However, a good portion of this data was posted in last month’s Durable Goods Orders release. The minor variance from forecasts is not enough to offset this morning’s political headlines.
High
Negative
The bond market appears to be reacting to headlines that President-elect Trump has denied weekend reports that indicated he would be less aggressive with his tariffs than previously thought. His contradiction of a Washington Post article erased overnight gains, leading to this morning’s negative open in bonds. It is believed that tariffs will cause higher prices, fueling inflation in the U.S. and making the Fed’s task of bringing it down to 2.0% annually more difficult. Inflation erodes the value of a long-term security’s future fixed interest payments, such as mortgage-related bonds, forcing investors to sell them at a discount. The lower prices push their yields upward. This is bad news for mortgage shoppers because rates tend to track bond yields.
Medium
Unknown
The rest of this week has four more monthly economic reports that may affect rates, in addition to a couple of Treasury auctions and the minutes from last month’s FOMC meeting. We should see the biggest move in rates late in the week after minor or moderate changes the early days.
Medium
Unknown
Tomorrow’s sole relevant release will be the Institute for Supply Management’s (ISM) non-manufacturing index (aka service index) for December at 10:00 AM ET. This is the sister report of last week’s ISM manufacturing index with this version tracking executive opinions on business conditions in the service sector rather than manufacturing. It is expected to show a reading of 53.5, up from November’s 52.1. A reading above 50.0 means more surveyed executives felt business improved during the month than those who said it worsened. Good news for mortgage rates would be a much weaker than predicted reading.
Medium
Unknown
Also worth noting about tomorrow is that this week’s two relevant Treasury auctions have each been moved a day earlier due to Thursday’s National Day of Mourning for former President Carter. 10-year Notes will not be auctioned tomorrow and 30-year Bonds will go Wednesday. They were previously set to happen Wednesday and Thursday. This will be an afternoon event for tomorrow’s rates. A strong demand from investors should lead to bond strength and a possible intraday day improvement to rates after results are announced at 1:00 PM ET.
Medium
Unknown
There are a high number of scheduled Fed-member speeches this week now that the FOMC meeting and holidays are behind us. There were a couple over the weekend and another this morning. So far, no big surprises have come from them. Several of this week’s speeches have topics listed that are related to the outlook of the economy and/or monetary policy. It is these particular events that are most likely to cause movement in the bond market and mortgage rates.
High
Unknown
Overall, Friday is the most important day of the week due to the significance that the governmental monthly Employment report carries in the markets. If mortgage rates react to any of the other reports, it likely will be a minor change in pricing, where we can see a sizable move from the Employment report. The calmest day for rates should be Thursday unless something unexpected happens. We can see volatility in the markets rise without warning. Therefore, it would be prudent to keep an eye on them if still floating an interest rate and closing in the near future.
If I were considering financing/refinancing a home, I would.... Lock if my closing was taking place within 7 days... Lock if my closing was taking place between 8 and 20 days... Float if my closing was taking place between 21 and 60 days... Float if my closing was taking place over 60 days from now... This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.