Thursday’s bond market has opened well in negative territory with little going on right now to encourage traders to buy rather than sell. Stocks are also showing noticeable losses with the Dow down 254 points and the Nasdaq down 203 points. The bond market is currently down 20/32 (4.91%), which with yesterday’s afternoon losses should cause a sizable increase in this morning’s mortgage pricing. The difference between Wednesday’s morning pricing and today’s rates are likely somewhere between .625 and .875 of a discount point.

Yesterday’s 10-year Treasury Note auction went better than expected with the benchmarks indicating there was a strong demand for the securities. While this is favorable news because mortgage rates are based on long-term debt, the geopolitical events and rising oil prices were too strong for the bond market to react yesterday. In other words, a strong auction doesn’t carry enough importance in the markets to allow bonds to ignore what is going on in the Middle East. We have a 30-year Treasury Bond auction taking place today also. If the 1:00 PM ET results announcement shows it was another well-received sale, we can hope to see a positive reaction in the bond market. However, today’s morning headlines are likely to prevent an intraday improvement in rates, at least by the auction results themselves.

The first of this morning’s three economic releases was August's Producer Price Index (PPI) at 8:30 AM ET. It revealed inflationary pressures at the wholesale level of the economy last month were pretty much in line with forecasts. The results were a bit mixed, but didn’t vary noticeably from expectations. The overall PPI reading rose 0.4% as predicted. However, the more important core reading that excludes more volatile food and energy costs rose only 0.2% when it was expected to be up 0.3%. On an annual basis, the rate of 5.4% year-over-year was a little stronger than estimates, while the core reading pegged forecasts of 4.6%. The annual readings are well above the Fed’s preferred rates of 2.0% and don’t seem to be showing a downward is coming. Accordingly, we are labeling the report bad news for bonds and pricing.

Last week’s unemployment figures were also released early this morning. They showed 206,000 new claims for jobless benefits were filed last week, down slightly from the previous week’s 207,000 new claims. Analysts were expecting to see 205,000 new claims, but the upwardly revised number from the previous week keeps the weekly change in line with forecasts. This allows us to label the data neutral for bonds and mortgage rates.

August's Existing Home Sales report was today’s final piece of data that had the potential to affect rates. The National Association of Realtors said home resales fell 2.0% last month. The decline didn’t come as a surprise but it does take sales to their lowest level since June of last year, signaling continued weakness in the housing sector. We can label this report favorable for bonds and mortgage rates even though the other headlines are driving trading this morning and not this data.

This morning’s bond sell-off and spike in mortgage rates is mostly due to a key oil price crossing $105 per barrel. Higher oil costs heavily influence rising inflation and not just the price we pay at the pump. Rising inflation makes a bond’s future fixed interest payments less appealing to investors. With no sign of the Iran war ending soon and clear signs it could be expanding to other countries in the Middle East, bond traders are concerned that inflation will move higher instead of lower. As a result, bond prices are down and yields are higher. Unfortunately, mortgage rates tend to track bond yields.

This week’s calendar will come to a close with the release of two more economic reports tomorrow morning. August’s Consumer Price Index (CPI) will be first, set to be posted at 8:30 AM ET. It is the sister release to yesterday’s Producer Price Index, giving us readings of inflationary pressures at the more important consumer level of the economy rather than the wholesale level. Analysts are expecting to see a 0.4% increase in the overall CPI and a 0.2% rise in the core data. Stronger than expected readings would be bad news for rates and would raise the possibility of the Fed bumping key short-term interest rates higher at next week’s FOMC meeting.

The University of Michigan's Index of Consumer Sentiment for September will be posted at 10:00 AM ET tomorrow. This index gives us an indication of consumer confidence in their own financial situations, projecting consumer willingness to spend. If a consumer's confidence in their own financial situation is rising, they are more apt to make large purchases in the near future, fueling economic growth. But if they are growing more concerned about their job security or finances, they probably will delay making that sizable purchase. This influences future consumer spending data and therefore impacts the financial markets. It is expected to show a lower reading than August's 51.7. The lower the reading, the better the news for mortgage rates.

If I were considering financing/refinancing a home, I would.... Lock if my closing was taking place within 7 days... Lock if my closing was taking place between 8 and 20 days... Lock 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.