Santa Fe Las Campanas Stock/Bond Market Report

Monday’s bond market has opened in positive territory due to sizable losses in stocks during early trading. The stock markets are falling as concerns about Europe take center stage again. The Dow is currently down 141 points, while the Nasdaq has lost 45 points. The bond market is currently up 16/32, bringing the benchmark yield of the 10-year Treasury Note back down to 2.00%. However, as a result of weakness in bonds late Friday, we probably will see little change in this morning’s mortgage rates.
There is nothing scheduled for release today that is likely to impact bond trading or mortgage pricing. Therefore, we can expect to see the stock markets continue to drive bond trading and mortgage rates the rest of the day. If the major stock indexes extend their current losses, bonds may move higher and mortgage rates lower. But a rebound in stocks through the day could lead to upward revisions in rates this afternoon.
The remainder of the week has plenty scheduled that will most likely influence mortgage rates. There are only four pieces of economic data for us to watch, but three of them are highly important to the markets. In addition to the economic reports, we also have the last FOMC meeting of the year and two important Treasury auctions that are likely to impact bond trading and mortgage pricing. Those events, coupled with the likelihood of further overseas developments from Europe and possibly others, make it highly likely that we will see plenty of movement in the markets and mortgage rates this week.
Tomorrow has two of the important events, starting with November’s Retail Sales report at 8:30 AM ET. This release will give us a key measurement of consumer spending by tracking sales at retail level establishments. This data is highly important to the markets because consumer spending makes up two-thirds of the U.S. economy. Rapidly rising consumer spending raises the possibility of seeing solid economic growth. Since long-term securities such as mortgage bonds are usually more appealing to investors during weaker economic conditions, a large increase in retail sales will likely drive bond prices lower and mortgage rates higher tomorrow. Current forecasts are calling for an increase of 0.6% in November’s sales.
The last FOMC meeting of the year takes place tomorrow also, adjourning at 2:15 PM ET. There is not much debate about what the Fed will do at this meeting with no chance of them raising key short-term interest rates. Therefore, the post meeting statement will likely be the sole source of a market reaction. This statement has the potential to have a significant influence on the markets and mortgage rates as investors look for any indication of what and when the Fed may do next. One potential move would be more debt purchases by the Fed. An announcement of another round of quantitative easing (QE3) could help boost bond prices and improve mortgage rates tomorrow afternoon. Besides that, it is believed that there isn’t much more the Fed can do to help boost economic activity.
Also tomorrow is the first of two important Treasury auctions. 10-year Notes will be sold tomorrow, while 30-year Bonds go to sale Wednesday. Tomorrow’s auction is the more important of the two and will likely influence mortgage rates more. Results of each sale will be posted at 1:00 PM ET. If they are met with a strong demand from investors, particularly international buyers, we should see afternoon strength in bonds and improvements to mortgage pricing those days. On the other hand, a weak interest in the auctions could lead to upward revisions to mortgage rates during afternoon hours tomorrow and/or Wednesday.
Overall, I am expecting to see a much more active week in the financial markets and mortgage pricing than last week. The most important day of the week is either tomorrow or Friday due to the reports being posted those days and the FOMC meeting. Please maintain contact with your mortgage professional if you have not locked an interest rate yet because we may see sizable changes to mortgage pricing more than one day this week. By Mark Woloshuk