February 19, 2007
This Week’s Bond Market News
There are only two economic reports worth watching this week that are likely to affect mortgage rates. Both of them are scheduled for release the same day, meaning we may see a relatively calm week for mortgage rates. The financial markets are closed tomorrow in observance of the President’s Day Holiday and will reopen Tuesday morning. You may find some lenders to be open for business tomorrow, but I would not expect to see new rates issued until Tuesday.
Wednesday morning brings us all of this week’s relevant news and data. The Labor Department will release January’s Consumer Price Index (CPI) at 8:30 AM ET, which measures inflationary pressures at the very important consumer level of the economy. With exception to maybe the Employment report, the CPI is the most important report that we see each month. Its results can have a huge impact on the financial markets, especially long-term securities such as mortgage-related bonds. It is expected to show a 0.1% increase in the overall index and a 0.2% rise in the more important core data. If we see weaker than expected readings, bond prices should rise and mortgage rates would likely fall.
The second and final relevant economic data of the week is the Leading Economic Indicators (LEI) for January. This Conference Board report attempts to predict economic activity over th e next three to six months. It is expected to show a 0.2% rise, meaning that economic activity may rise in the near future. A smaller than expected increase would be good news for the bond market and mortgage rates.
Also, Wednesday afternoon brings us the release of the minutes from the last FOMC meeting. Traders will be looking for any indication of the Fed’s next move regarding monetary policy. They will be released at 2:00 PM ET, therefore, any reaction will come during afternoon trading.
Overall, the most important day of the week is obviously Wednesday with the release of all of the week’s relevant news. The rest of the week will likely be fairly quiet, keeping mortgage near Wednesday’s afternoon levels. The recent bond rally has me concerned that traders may sell some holdings to capture the profits from the run in prices. We may see some selling ahead of Wednesday’s data while some traders may wait until after Wednesday’s news. I believe that favora ble news is already built into current bond prices. Accordingly, I have shifted to a lock recommendation for immediate and short-term periods.
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.
Doctors Alan Greenspan and Ben Bernanke, former and current Federal Reserve Chairmen, respectively, have declared the housing patient on the mend. Are they right, or is it a case of another early diagnosis (like Greenspan’s 1996 “irrational exuberance” diagnosis, over three years before the market’s top)? 
Efforts by major banks and Wall Street firms to unload bad U.S. housing loans are speeding up a shakeout in the subprime mortgage industry.
"Overall, the U.S. economy seems likely to expand at a moderate pace this year and next, with growth strengthening somewhat as the drag from housing diminishes," Bernanke told the Senate Banking Committee as he delivered the central bank’s semiannual monetary policy report.
