December 11, 2012

Interest Rates December 10th

What have rates been doing?

Since previous business day: unchanged

Since previous week: unchanged

Since previous month: down

From the trading floor:

Monday’s bond market has opened in positive territory as traders prepare for the week ahead of us. The stock markets are showing minor gains with the Dow up 18 points and the Nasdaq up 7 points. The bond market is currently up 5/32, which should improve this morning’s mortgage rates by approximately .125 of a discount point.

There is nothing of relevance scheduled for release today, but the rest of the week brings us five economic reports that are considered relevant to mortgage rates in addition to an FOMC meeting and other related Fed events and two Treasury auctions that have the potential to influence mortgage pricing.

October’s Goods and Services Trade Balance report will be posted early tomorrow morning. This report gives us the size of the U.S. trade deficit, but it is considered to be of low importance to mortgage rates. It is actually the week’s least important monthly report and shouldn’t draw too much attention. It is expected to show a $42.7 billion trade deficit, which would be an increase from September. Unless it varies greatly from forecasts, I don’t expect this data to affect tomorrow’s mortgage pricing.

Wednesday is dedicated mostly to Mr. Bernanke and friends with the adjournment of the two-day FOMC meeting at 12:30 PM followed by an update of the Fed’s outlook on key economic benchmarks such as unemployment and GDP readings at 2:00 PM ET. Then Mr. Bernanke comes to the stage at 2:15 PM with his press conference about the Fed’s actions and predictions.

Once the Fed stuff is behind us, we start with the major economic data that is scheduled this week. Over Thursday and Friday we will get to see two key inflation readings and a benchmark measurement of consumer spending along with some less important data. Each of the three big reports can be a market mover, so look for an interesting ending to the week.

Overall, there is a high probability that we will see an active week in the financial and mortgage markets, but it will likely start off slow and gain momentum as the week progresses. Wednesday will probably be the most important day due mostly to the Fed events, but Thursday has two of the very important economic reports so we may see plenty of volatility that day also. I still believe we are due for a stock pullback that will cause a flight-to-safety in bonds, hence the optimistic approach towards interest rates.