This Week's Market Commentary

This week brings us little to drive bond trading and mortgage rates. There is only one monthly economic report scheduled, which is considered to be of low importance to the markets anyhow. That would give the appearance that we are in for a quiet week for mortgage rates, but I don’t believe this will be the case. There probably will be less activity and movement than we saw last week. However, I suspect that we will still end up seeing a fair amount of movement in rates between Monday’s opening and Friday’s closing.

There is nothing of importance scheduled to be posted Monday or Tuesday. This means that the stock markets will probably dictate bond direction there first part of the week. If the major stock indexes rally again, they will pressure bonds leading to higher mortgage rates. However, stock weakness should allow bond prices to rise and mortgage rates to improve.

Besides the sole monthly economic report late in the week, we also have two Treasury auctions that have the potential to influence mortgage pricing. They will be held Wednesday and Thursday when 10-year Notes and 30-year Bonds are sold. The 10-year sale is the more important of the two as it will give us a better indication for demand of mortgage-related securities. If the sales are met with a strong demand from investors, we should see the bond market move higher during afternoon trading the days of the auctions. But a lackluster interest from buyers, particularly international investors, would indicate a waning appetite for longer-term U.S. securities and lead to broader bond selling. The selling in bonds would likely result in upward revisions to mortgage rates.

Also worth noting is some news from overseas before the markets open Thursday. The Bank of England’s monetary policy announcement (equivalent to our FOMC) will be released at 7:15 AM ET while the European Central Bank will announce at 7:45 AM ET. The ECB will draw the most attention as global investors are extremely concerned about the Eurozone and what actions will be taken to shore up some of its’ member’s finances. We should be on alert for a reaction in the bond and mortgage markets if they yield any surprises.

November's Goods and Services Trade Balance will be posted early Friday morning. It measures the size of the U.S. trade deficit and is expected to show a $41.8 billion deficit. This data usually does not directly affect mortgage rates, but it does influence the value of the U.S. dollar versus other currencies. A stronger dollar makes U.S. securities more attractive to international investors because they are worth more when sold and converted to the investor's domestic currency. But unless we see a significant variance from forecasts, I don't believe this data will lead to a change in mortgage rates Friday.

Overall, it would be easy to say this will be a calm week for the mortgage markets due to the lack of important or highly influential events scheduled. I would not be surprised to see stocks move lower for the week, helping to push funds back into bonds. We saw some improvement in bonds late Friday, so if your lender did not improve rates during afternoon trading, you have an improvement of approximately .125 - .250 of a discount point waiting at tomorrow’s opening. That could shrink or get larger depending on how the markets perform during early morning trading, but there is a decent possibility of starting the week off in the right direction. With the benchmark 10-year Treasury Note currently yielding 1.90%, I believe there is more likelihood of seeing bonds improve (pushing yields and mortgage rates lower) in the immediate future than seeing them move lower (raising yields and mortgage pricing). Of course, this is just speculation and only an opinion, so please maintain contact with your mortgage professional if still floating an interest rate.