Market Commentary

Updated on July 26, 2013 10:45:42 AM EDT OpenClose Mortgage Software Friday’s bond market has opened up slightly with stocks showing noticeable losses. The major stock indexes are well in negative territory during early trading. The Dow is currently down 94 points while the Nasdaq has lost 10 points. The bond market is currently up 3/32, but afternoon strength yesterday should improve this morning’s mortgage rates by approximately .125 - .250 of a discount point. Yesterday’s 7-year Treasury Note auction went a little better than Wednesday’s 5-year Note sale. That news didn’t cause bonds to rally late yesterday, but it did contribute to them erasing their morning losses and moving into positive ground before closing. The rebound from yesterday and this morning’s gains have pushed the yield on the benchmark 10-year Treasury Note down to 2.56%. Unfortunately, as long as it is above 2.50% it is my opinion that the risk of mortgage rates moving upward still remains high. Therefore, please proceed cautiously if still floating an interest rate and closing in the near future. There was one piece of economic data posted late this morning. The University of Michigan revised their Index of Consumer Sentiment for July just before 10:00 AM ET. They announced a reading of 85.1 that was its highest level in six years, indicating that surveyed consumers were more optimistic about their own financial situations than many had expected. Analysts were calling for a reading of 84.1, which was a slight increase from the preliminary estimate of 83.9 announced earlier this month. Because rising confidence in consumers usually means they are more apt to make a large purchase in the near future that fuels economic growth, we should consider this data negative for the bond market and mortgage rates. However, as expected, the news hasn’t had much of an influence on this morning’s trading or mortgage pricing. Next week is extremely busy in terms of important economic data and other events that are likely to affect bond trading and mortgage rates. I show seven economic reports currently scheduled to be posted next week, including the initial Gross Domestic Product (GDP) reading for the second quarter, ISM manufacturing index and the monthly Employment report. In addition, we also have another FOMC meeting that will probably cause more volatility in the markets. The mortgage relevant events don’t start until Tuesday morning, so expect any weekend news and last minute portfolio adjustments ahead of the week’s calendar to drive bond trading and mortgage pricing Monday. Look for details on next week’s events in Sunday’s weekly preview. Tomorrow’s only relevant economic data is the revised reading to July's University of Michigan Index of Consumer Sentiment just before 10:00 AM ET. This index will help us measure consumer optimism about their own financial situations and is considered relevant because rising consumer confidence usually translates into higher levels of spending, which adds fuel to the economic recovery and is looked at as bad news for bonds. Tomorrow’s release is an update to the preliminary reading we saw two weeks ago, so unless we see a drastic revision to the preliminary estimate of 83.9, I think the markets will probably shrug this news off. ©Mortgage Commentary 2013

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