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Mortgage Market Update for August 19, 2010

Thursday, August 19th, 2010

Thursday’s bond market has opened in positive ground following significant stock weakness and favorable economic data. The Dow is currently down 172 points while the Nasdaq has fallen 40 points. The bond market is currently up 13/32, but we may not see much of an improvement in mortgage rates due to weakness late yesterday.

The Labor Department gave us last week’s unemployment figures. They reported that 500,000 new claims for unemployment benefits were filed last week. This was well above forecasts, indicating that the employment sector is weakening and not improving. That is good news for the bond market because a broader economic recovery will be extremely difficult if the employment sector is softening. It also means consumers have less money to spend and less likely to spend what they do have. This data usually has little influence on mortgage rates, but today’s surprise spike touched a very important threshold of 500,000. That raises more concerns about the economy, making bonds more attractive.

Late this morning, the Conference Board said that their Leading Economic Indicators (LEI) rose 0.1% in July. This was a smaller increase than was expected, meaning economic activity may not grow as much as many had thought over the next several months. That is also good news for bonds because the weaker the economy, the better long-term securities such as mortgage-related bonds look to investors.

There is nothing of relevance scheduled for tomorrow, so it is fairly safe to say that the stock markets will probably affect bond trading and mortgage rates more than anything else. If stocks move higher, bonds will likely weaken, leading to slightly higher mortgage rates. However, stock selling could translate into higher mortgage pricing.

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