Santa Fe Las Campanas Stock/Bond Market Report

Monday’s bond market has opened flat despite stocks in negative territory and rising concerns about the Greece situation. The Dow is currently down 46 points while the Nasdaq has lost 11 points. The bond market is currently nearly unchanged from Friday’s close, but we will still see an increase of approximately .125 – .250 of a discount point in this morning’s mortgage rates due to weakness late Friday. If your lender revised rates higher Friday afternoon, this morning’s increase may not be as noticeable.
There is nothing of relevance scheduled for release today, so any intra-day change to rates will likely be a result of a sizable move in stocks. Fed Chairman Bernanke will speak to the Senate Budget Committee at 10:00 AM tomorrow. I don’t expect him to say anything different than he said last week to the House Budget Committee, but the Q&A portion of his appearance could lead to something new. It is worth watching, but it will probably not lead to much of a change in the markets or mortgage rates.
The rest of the week only has two pieces of monthly economic data scheduled, both coming Friday morning. Neither of them is considered to be highly important, so we don’t have much to pin our hopes on or to be concerned with this week. There are two Treasury auctions on the calendar the middle part of the week that may influence mortgage rates the middle part of the week, but nothing as important as some of last week’s reports and events.
The two important Treasury auctions come Wednesday and Thursday when 10-year Notes and 30-year Bonds are sold. The 10-year sale is the more important one as it will give us a better indication of 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 afternoon revisions to mortgage rates.
Overall, despite being a fairly light week in terms of economic releases and relate events, it is still relatively crucial for the mortgage market. We saw the yield on the benchmark 10-year Treasury Note spike higher Friday as a result of the stronger than expected employment data. Stocks rallied as a result of that data, extending the 2012 stock rally that has pushed the Dow up over 5% and the Nasdaq up 11% year-to-date. Both indexes closed last week at their highest levels since May 2008 and December 2000 respectively. This has me believing we are due to see a pullback in stocks fairly soon. If/when this happens, we should see funds shift back into bonds for safety, leading to lower mortgage rates. Keep in mind that this is more or less just speculation, but I am expecting to move to a less conservative approach regarding short-term mortgage rates in the near future.
By Mark Woloshuk