This week may be quite interesting for the bond market and mortgage rates. There are only three economic reports scheduled for the financial and mortgage markets to digest and none of them are considered to be of high importance to the markets. But in addition to the minimal economic data, we have two days of semi-annual congressional testimony by Fed Chairman Bernanke. The first day of testimony has the potential to influence changes to mortgage rates more than many of the monthly or quarterly pieces of economic data that we see regularly. Add in the fact that the 10-year Treasury Note again fell below, and closed under the benchmark 3.00% last week and we have bond market yields at a point of potential downward movement or an upward spike. This could be the week that we get that direction decided.
The first economic report of the week comes Tuesday morning with the release of June's Housing Starts. This data gives us an indication of housing sector strengt h, but is not considered to be of high importance. Analysts are currently expecting to see a decline in new home construction starts. However, I don't see this data having much of an impact on mortgage rates Tuesday unless it varies greatly from forecasts.
Fed Chairman Bernanke will speak before the Senate Banking Committee Wednesday and the House Financial Services Committee Thursday mornings at 10:00am ET. His testimony will be broadcast and watched very closely. Analysts and traders will be looking for the status of the economy and his expectations of future growth, particularly inflation concerns that will lead to changes in key short-term interest rates. This should create a great deal of volatility in the markets during the prepared testimony and the question and answer session that follows. If he indicates that inflation may become a point of concern, we will likely see the bond market fall and mortgage rates rise.
We usually see the most movement in rates during the first day of this testimony as the Chairman's prepared words for both appearances are quite similar to each other, meaning that the second day of testimony rarely gives us anything we did not hear during the first day. The general exception is something asked or answered during the Q&A portion of the second day's appearance.
The National Association of Realtors will post June's Existing Home Sales figures during late morning hours Thursday. This report gives us a measurement of housing sector strength and mortgage credit demand, but as with all of this week's data it is not considered highly important. Current forecasts are calling for a decline in sales from May's totals. A larger than expected drop in sales would be considered good news for bonds and mortgage rates because a weak housing sector would make it difficult for the economy to recover anytime soon. However, unless this data varies greatly from forecasts it pro bably will not cause much of a change in mortgage rates.
June's Leading Economic Indicators (LEI) at 10:00 AM will also be posted late Thursday. This Conference Board index attempts to measure economic activity over the next three to six months. While it is not a factual report, it still is considered to be of moderate importance to the bond market. It is expected to show a 0.4% decrease, meaning that we may see noticeable pullback in economic activity over the next few months. A larger decline in the index would be good news for the bond and mortgage markets.
Overall, this is a moderately significant week for the bond market and mortgage rates. If we get weaker than expected economic results and Chairman Bernanke's words do not negatively surprise the markets, we may see mortgage rates move lower for the week. However, if Mr. Bernanke's testimony raises concerns about rapid economic growth or inflation, rates may move higher on the week. I suspect we will see them move noticeably from current levels, which could be the base for more movement in the same direction over the next couple of weeks. Therefore, even though there is not a large number of relevant reports scheduled for release, don't underestimate the importance of this particularly week. This is especially true if still floating an interest rate.
If I were considering financing/refinancing a home, I would.... Float if my closing was taking place within 7 days... Float if my closing was taking place between 8 and 20 days... Float 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.
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