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Wednesday’s bond market has opened in negative territory following stronger than expected economic data. The stock markets are showing minor gains during early trading with the Dow up 26 points and the Nasdaq up 15 points. The bond market is currently down11/32, which push this morning’s mortgage rates higher by approximately .125 – .250 of a discount point.
There were four pieces of economic data released this morning. The first was at 8:30 AM ET and was the most important report of the week. That is when the Commerce Department posted October’s Durable Goods Orders, revealing a 2.0% decline in new orders for big-ticket products. Since analysts were expecting to see a 2.2% decline in orders and this data is known to be volatile from month to month, the results weren’t anything to be concerned with or overly happy about. The report does indicate manufacturing sector weakness but showed no significant surprises. Therefore, we should consider the data to be neutral for the bond market and mortgage rates.
The Labor Department announced early this morning that 316,000 new claims for unemployment benefits were filed last week. That was a decline from the previous week’s revised total of 326,000. Because analysts were expecting to see an increase in initial claims, indicating employment sector weakness, the data is bad news for mortgage rates. Declining claims for benefits is a sign of strength in the sector, so bond traders prefer to see rising claims.
The week’s final two reports were released late this morning. The University of Michigan released their revised Index of Consumer Sentiment for November just before 10:00 AM ET. It showed a reading of 75.1 that exceeded forecasts and indicates that surveyed consumers felt better about their own financial and employment situations than many had thought. Forecasts were calling for a reading of 73.0 and the higher the reading, the more likely consumers are going to make a large purchase in the near future. That fuels economic growth and makes the data negative for the bond and mortgage markets.
At 10:00 AM ET, the Conference Board closed the week’s economic calendar with their Leading Economic Indicators (LEI) for October. It came in with a 0.2% increase, exceeding forecasts of a 0.1% decline. This index attempts to predict economic growth over the next three to six months. While this is also only a minor report, it was the third report of the morning that gave us results that were clearly not favorable for mortgage rates. That has helped push bond prices to their lowest levels of the morning and created this morning’s increase in mortgage rates.
Today also has the 7-year Treasury Note auction that could affect bond trading and mortgage rates if it is met with a strong or obviously weak demand from investors. Results will be posted at 11:30 AM ET, so any reaction will come during early afternoon trading. Yesterday’s 5-year Note sale drew a decent level of investor interest, giving us something to be optimistic about in today’s auction. Today’s securities are actually closer in term to mortgage bonds than yesterday’s 5-year Notes, so a high level of interest today should help boost bond prices and possibly improve mortgage rates later today. On the other hand, a weaker demand than yesterday’s auction could lead to a minor intra-day increase in rates.
The financial and mortgage markets will be closed tomorrow for the Thanksgiving Day holiday. There are no early closings scheduled for today, but I would not be surprised to see thinner trading as the afternoon progresses due to traders getting a head start on the holiday. The markets will be open for trading Friday, although it will be a shortened day and it has no relevant economic data scheduled.