Rate Lock Advisory - Wednesday Nov. 9th

Float unless your are more than 60 days away from closing.

Wednesday's bond market has opened significantly higher due to financial concerns from overseas and sizable stock losses. The stock markets are reacting to the same news, causing them to be in selling mode. The Dow is currently down 313 points, falling below 12,000 again, while the Nasdaq has lost 80 points. The bond market is currently up 35/32, which should improve this morning's mortgage rates by approximately .250 of a discount point. Restricting this morning's improvement is weakness from yesterday afternoon's trading.

The news from overseas that has markets in turmoil comes from Italy, where Premier Berlusconi has announced he will resign in two weeks. It appears that the markets don't want to wait that long or trust that he will follow through with his promise. What happened is their interest rates that will dictate the government's cost of borrowing spiked to 7.40% after his announcement yesterday, crossing the 7.00% threshold that is believed to have caused other European countries to need bailouts. The fear now is if their rates remain that high, another financial crisis could arise in that region, affecting the global economy.

There is no relevant economic data being posted today, allowing the markets to react solely on Italy's news. Today's bond rally has pushed the benchmark 10-year Treasury Note below 2.00% again (currently 1.96%). It is my opinion that this is more of a knee-jerk reaction to the events than the start of a true long-term flight to safety for bonds. This means that I suspect this rally will be short-lived. Enjoy this morning's improvement in rates, but be careful if still floating an interest rate and closing in the near future. If I am correct and we see a reversal of this rally, this morning's gains could be erased in one intra-day revision.

As expected, Mr. Bernanke's opening comments at a business conference this morning failed to bring us any highlights or surprises. It was a non-event in today's trading and mortgage rates.

We do have the 10-year Treasury Note auction to watch today. Results of the sale will be posted at 1:00 PM ET, so any reaction to the sale will come during afternoon hours. If it was met with a strong demand from investors, bond prices may move higher later today, possibly leading to a small improvement in mortgage rates also. On the other hand, a weak interest in the sale could lead to an upward revision to mortgage pricing.

Tomorrow brings us the morning release of two pieces of economic data and the 30-year Bond auction. The first piece of data is September's Goods and Services Trade Balance report at 8:30 AM ET. It helps us measure the size of the U.S. trade deficit, but usually is not a major influence on bond trading or mortgage pricing. It does affect the value of the U.S. dollar, which makes U.S. securities more attractive to international investors when the dollar is strong. This is because the securities' proceeds are worth more when sold and converted to the investor's domestic currency. However, its results will not likely directly lead to changes in mortgage rates. Analysts are expecting to see a $45.9 billion trade deficit.

The second report is the weekly unemployment update from the Labor Department. They are expected to announce that the number of new claims for unemployment benefits filed last week inched up to 400,000 from 397,000 the previous week. We usually need to see a sizable variance from forecasts for this data to influence mortgage rates since it tracks only a single week's worth of new claims. With little data being posted this week, tomorrow's update could have a little more impact than usual, but I am not expecting to see it cause a noticeable change to rates.

If I were considering financing/refinancing a home, I would.... Lock if my closing was taking place within 7 days... Lock if my closing was taking place between 8 and 20 days... Lock 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.

(C)Mortgage Commentary 2011

Richard Woodward
Banker / Senior Branch Manager, NMLS ID 217454
Envoy Mortgage - When Trusted Advice Counts
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