September 24th, 2009 11:44 AM by Mel Samick
This week's FOMC meeting has adjourned with no change to key short-term interest rates. The post meeting statement didn't give us any surprises. The Fed stated that economic activity has picked up but that the labor market is still a concern and could hamper the economic recovery. They also indicated that inflation remains subdued, which is good news for bonds.Today's 5-year Treasury Note auction was met with a demand that can be considered on the weak side. This had initially pressured bonds until the FOMC statement was released. The reference to inflationary pressures helped ease the negative tone in the bond market that came as a result of the 1:00 PM posting of the auction data. The stock markets initially reacted favorably to the FOMC statement with the Dow and Nasdaq both setting new highs of the day immediately after it was released. However, they have since given back those gains and are now well into negative territory, setting new lows of the day. This has helped make bonds more attractive and led to some funds being shifted into the bond market. The end result is that we may see a slight improvement to mortgage rates this afternoon, but many lenders may just wait until tomorrow morning's update to reflect that change.Weekly unemployment figures and August's Existing Home Sales report are the only semi-relevant economic releases scheduled for tomorrow. The Labor Department will give us last week's unemployment numbers early tomorrow. They are expected to say that 550,000 new claims for benefits were filed last week. But unless we see a wide variance between that figure and the actual number, I don't believe that this report will affect mortgage rates.The National Association of Realtors will post their Existing Home Sales figures for August late tomorrow morning. This data gives us an indication of housing sector strength by tracking home resales in the U.S. It is expected to show a moderate increase from July's sales, however, this data is not considered to be of high importance to the bond market and likely will not cause a significant change to rates unless it varies greatly from forecasts.Also tomorrow is the 7-year Treasury Note sale. If it is met with a similar demand as today's sale was, we could see mortgage rates move higher during afternoon trading. This sale gives us a better measurement of investor appetite for longer-term securities such as mortgage related bonds than today's 5-year Note sale did. So, we may see a more profound reaction in the bond and mortgage markets if the sale goes exceptionally well or badly.