Thursday’s bond market has opened up sharply as it continues yesterday’s late rally that came as a result of the Fed FOMC minutes that were released during afternoon trading. The stock markets are mixed with the Dow down 41 points and the Nasdaq up 3 points. The bond market is currently up 33/32, but since mortgage bonds have not rallied nearly as much as Treasury Bonds, the improvement in this morning’s mortgage rates is limited to approximately .250 of a discount point.

Yesterday’s release of the minutes from the last FOMC meeting did bring us some surprises and led to the selling in stocks and shifting of funds into bonds. The minutes revealed that several Fed members are concerned about deflation (instead of inflation) where prices actually deflate rather than rise. That creates a very favorable environment for bonds and other long-term securities because their future fixed interest payments are worth more down the road. The minutes also showed the Fed significantly lowered its outlook on economic growth and employment activity, raising more concern that the economy has more room to shrink before stabilizing. This also makes bonds more attractive to investors because slowing economic activity usually means weaker corporate profits that drive stock prices lower.

The Labor Department gave us last week’s unemployment figures this morning, saying that new claims for benefits rose from 515,000 to 542,000 when they were expected to drop to 503,000. While this is only a week’s worth of claims, it does however further support the theory that the employment sector is still weakening quickly. Another favorable note for bonds.

October’s Leading Economic Indicators (LEI) was posted by the Conference Board late this morning, showing a decline of 0.8%.and lowering September’s reading by 0.2%. Analysts were expecting to see a 0.6% drop, meaning that they are expecting economic activity to slow over the next three to six months at a quicker pace than many had thought.

There is no relevant economic data scheduled for release tomorrow, but I would not be surprised to see more volatility in the markets. Mortgage rates have not improved nearly as much as Treasury bonds have, but I am expecting to see the improvements in rates slowly continue. Accordingly, I am holding the float recommendations for the time being.

If I were considering financing/refinancing a home, I would....

Float if my closing was taking place within 7 days...

Float 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.

Wednesday’s bond market has opened in positive territory following favorable results from today’s CPI release. The stock markets are showing another round of early losses with the Dow down 150 points and the Nasdaq down 40 points. The bond market is currently up 17/32, which will likely improve this morning’s mortgage rates by approximately .250 of a discount point.

The Labor Department gave us today’s big news with the release of October’s Consumer Price Index (CPI). They reported that the overall reading fell 1.0% last month while the core data fell 0.1%. Both of these readings were below forecasts, indicating that inflationary pressures at the consumer level of the economy were not as bad as many had thought. This is very good news for bonds and mortgage rates.

October’s Housing Starts was also posted this morning, showing a stronger level of new starts than what forecasts were calling for. That could be considered bad news for the bond market and mortgage pricing, but this data is not considered to be of high importance to the markets therefore has had little impact on today’s pricing.

The minutes to the last FOMC meeting will be released at 2:00 PM ET. These may be a major mover of the markets or could be a non-factor, depending on what they say. The key will be concerns over inflation and the Fed’s next move. If the Fed members were concerned about inflationary pressures, we may see the bond market move lower and mortgage rates higher tomorrow afternoon. However, if they indicate a likelihood of another rate cut in the coming months, we should see the bond market rise and mortgage rates drop during afternoon trading.

Tomorrow brings us the release of weekly unemployment figures and October’s Leading Economic Indicators (LEI). The Labor Department will post weekly unemployment claims but unless it varies greatly from the 503,000 that is expected, I don’t believe this data will affect tomorrow’s mortgage pricing.

The LEI will be posted by the Conference Board at 10:00 AM ET and is expected to show a decline of 0.6%. This means that the report is predicting economic activity to slow relatively quickly in the next three to six months. That would be good news for bonds because a slowing or weakening economy generally speaking makes bonds more attractive to investors and usually leads to lower mortgage rates.

Tuesday’s bond market has opened in positive territory again, despite early stock gains. The stock markets are rebounding from yesterday’s 223 point loss in the Dow with fairly strong gains during morning trading. The Dow is currently up 181 points while the Nasdaq has gained 11 points. The bond market is currently up 9/32, which will likely improve this morning’s mortgage rates by approximately .125 of a discount point.

The Labor Department gave us the first of the week’s two key inflation readings. They reported that the PPI fell a whopping 2.8% that was a much larger drop than analysts had forecasted. However, the more important core data reading that excludes more volatile food and energy prices rose 0.4% when analysts were expecting to see a 0.1% rise. This means that prices for non food and energy costs rose more than expected, which is considered bad news for bonds and mortgage rates.

Today’s markets are being boosted by favorable comments by Treasury Secretary Paulson that the Fed bailout program was making progress. Many lawmakers had questioned the usage of the money for the program but market participants liked what they heard, helping to fuel this morning’s buying in stocks and bonds.

Tomorrow’s only data is October’s Housing Starts. This data gives us an indication of housing sector strength, but usually does not have a noticeably impact on mortgage rates. I don’t expect this month’s version to be any different unless it varies greatly from analysts forecast. It is expected to show a decline in starts of new homes.

Tomorrow afternoon brings us the release of the minutes to the last FOMC meeting. These may be a major mover of the markets or could be a non-factor, depending on what they say. The key will be concerns over inflation and the Fed’s next move. If the Fed members were concerned about inflationary pressures, we may see the bond market move lower and mortgage rates higher tomorrow afternoon. However, if they indicate a likelihood of another rate cut in the coming months, we should see the bond market rise and mortgage rates drop during afternoon trading.

Monday’s bond market has opened in positive territory following another round of stock weakness that has bonds looking more attractive to investors. The stock markets are continuing Friday’s selling with the Dow currently down 162 points and the Nasdaq down 30 points. The bond market is currently up 11/32, which should improve this morning’s mortgage rates by approximately .125 - .250 of a discount point.

Today’s Industrial Production report revealed a much larger than expected increase in manufacturer output. The 1.3% increase greatly exceeded analysts’ forecasts of a 0.1% decline in output, meaning that U.S. factories, mines and utilities were busier than many had thought. This is considered to be negative news for bonds and mortgage rates.

The rest of the week brings us the release of four more monthly reports for the markets to digest along with the minutes from the last FOMC meeting. The first of the week’s two key inflation readings will be posted early tomorrow morning when October's Producer Price Index (PPI) is released. The PPI measures inflationary pressures at the producer level of the economy. There are two portions of the index that are used- the overall reading and the core data reading. The core data is the more important of the two because it excludes more volatile food and energy prices.

If the core data reveals stronger than expected readings, indicating that inflationary pressures are rising, the bond market will probably react negatively and should drive mortgage rates higher. If we see in-line or weaker than expected numbers, mortgage rates should fall. Current forecasts are calling for a decline of 1.8% in the overall reading and a 0.1% increase in the core reading.

Overall, look for tomorrow or Wednesday to be the most important day of the week with the PPI and CPI reports scheduled for release those days. They are the two most important releases of the week and can individually lead to large swings in the markets and mortgage rates. The FOMC minutes may also heavily influence trading and deserve to be watched also. I think this will be a fairly active week for mortgage rates, so please maintain regular contact with your mortgage professional.