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February 26th, 2008 6:42 PM


Tuesday's bond market has opened in negative territory following stronger than expected inflation related readings. The stock markets are currently showing gains after opening with losses. The Dow is now up 80 points while the Nasdaq has gained 20 points. The bond market is currently up 5/32, but we will still see an increase of approximately .250 of a discount point in this morning's mortgage rates due to weakness in trading late yesterday.

The Labor Department reported early this morning that their Producer Price Index (PPI) for January rose 1.0% and that the core data rose 0.4%. Both of these readings were well above analysts' forecasts, indicating that inflationary pressures at the producer level of the economy are rising. This is bad news for bonds and mortgage rates because inflation erodes the value of a bond's future fixed interest payments. That leads to bond selling and rising mortgage rates.

In a bit of good news, February's Consume r Confidence Index (CCI) that was also released today showed a much larger than expected drop in confidence. The reading of 75.0 was well below the 82.5 that was expected, meaning that consumers are less likely to make large purchases in the near future.

Tomorrow begins the two day Congressional testimony by Fed Chairman Bernanke. He will be speaking to the House Financial Services Committee tomorrow morning and the Senate Banking Committee Thursday. Market participants will be watching his words very closely for any indication of inflation concerns, a possible recession and likelihood of the Fed's next monetary policy move. It will likely create additional volatility in the markets tomorrow morning.

As for economic data tomorrow, we have January's Durable Goods Orders at 8:30 AM ET. This data gives us an important measurement of manufacturing sector strength by tracking orders at U.S. factories for items expected to last three or more years. A larg er drop than the 4.0% that is expected would be good news for the bond market and mortgage rates. This data is quite volatile from month to month, so large swings are fairly normal.

January's New Home Sales will also be posted, but I am not expecting it to have an impact on bond trading or mortgage rates due to the importance of the Durable Goods report and Mr. Bernanke's testimony.

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.

©Mortgage Commentary 2008
Posted by Scott Batt on February 26th, 2008 6:42 PMPost a Comment (0)
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