Mel's Blog

November 09 Market News #1

November 5th, 2009 9:07 AM by Mel Samick

This week's FOMC meeting has adjourned with no change to key short-term interest rates. This was widely expected, but we still have seen a negative reaction in bonds. The stock markets had a knee-jerk downward move after the post-meeting statement was released, but they have since recovered those losses. The Dow is currently up 110 points while the Nasdaq has gained 15 points. The bond market is currently down 16/32, which will likely cause an upward change to mortgage rates.

In the post-meeting statement, the Fed indicated that key short-term interest rates will remain near current levels for quite some time. That can be considered good news for bonds because it means the Fed is not too concerned about inflation. However, they also renewed previous comments that the economy is indeed growing. Even though there is cautious optimism about the economy being able to continue to expand, hearing the Fed further support the theory that the economy may be able to do so has hurt bond prices.

Also contributing to this afternoon's bond selling was word that the Fed has lowered the amount of mortgage-related debt it is planning to purchase by $25 billion. The Fed is still expecting to make large purchases of those securities to help fuel mortgage lending and boost the housing sector. But the reduction from previous estimates has helped create a negative tone in the bond market this afternoon.

There was no important economic news posted this morning. Tomorrow's data is relatively important to the bond market though. The 3rd Quarter Productivity reading is expected to show an increase in productivity at an annual rate of 6.5%. A larger increase would be good news for the bond market because higher levels of productivity allow the economy to expand without inflationary pressures being a concern.

The Labor Department will give us last week's unemployment figures tomorrow morning also. They are expected to report that 522,000 new claims for unemployment benefits were filed last week. This would be a decline from the previous week, but unless we see a wide variance from expectations I don't believe this data will have much of an impact on tomorrow's mortgage rates. Especially with October's monthly numbers coming Friday morning


Posted in:General
Posted by Mel Samick on November 5th, 2009 9:07 AM



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