Thursday’s bond market opened in positive territory despite stronger than expected manufacturing data. The stock markets are calm for the most part with the Dow down 3 points and the Nasdaq down 15 points. The bond market is currently up 10/32 (1.71%), but due to weakness late yesterday we still should see an increase of approximately .125 of a discount point in this morning’s mortgage rates.
Yesterday’s 5-year Treasury Note auction went pretty well with several benchmarks showings a decent level of investor interest in the securities. That news helped the bond market slow the downward move that was already in progress. Unfortunately, that was short-lived and bonds continued to slip lower as the afternoon progressed. However, yesterday’s sale results do help us to remain optimistic about today’s 7-year Note auction. Results will be posted at 1:00 PM ET, so any reaction will come during early afternoon trading. Another good auction good help boost bond prices and possibly cause a small improvement to mortgage rates later today.
This morning’s economic data gave us mixed results with the more important of the two being the negative news. The good news came in the weekly unemployment update at 8:30 AM ET. It showed that 272,000 new claims for unemployment benefits were filed last week. This was an increase from the previous week’s 262,000 and slightly higher than the 270,000 that was expected. Because rising claims hints at a softening labor market and is a sign of economic weakness, we can consider this news to be favorable for mortgage rates.
The more important data was January’s Durable Goods Orders data that revealed a 4.9% jump in new orders for big-ticket products such as electronics, refrigerators, airplanes and autos. This was much higher than the 2.0% increase that was forecasted. Even a secondary reading that excludes more volatile transportation-related orders, like new airplanes, exceeded expectations (up 1.8% vs 0.4%). These readings indicate a better than thought manufacturing sector that causes us to label the data negative for mortgage shoppers.
Tomorrow has the remaining three relevant pieces of economic data. The first of two revisions to the 4th Quarter GDP reading is scheduled for release at 8:30 AM ET. The GDP is considered the benchmark reading of economic growth or contraction because it is the total sum of all goods and services produced in the U.S. Analysts’ forecasts currently call for an annual rate of growth of 0.4%, down from the initial estimate of 0.7% that was posted last month. It will be interesting to see where this figure falls and what its impact on the markets will be. Generally speaking, higher levels of activity are bad news for the bond market, while a larger downward revision would be good news for bonds and could lead to improvements in mortgage pricing tomorrow.
January’s Personal Income and Outlays data is also scheduled for release at 8:30 AM ET tomorrow. This data gives us an indication of consumer ability to spend and current spending habits. Current forecasts call for an increase in income of 0.4% while spending is expected to rise 0.3%. Lower levels of income means consumers have less money to spend. And weaker levels of consumer spending helps limit overall economic growth, making long-term securities such as mortgage-related bonds more attractive to investors. Therefore, the weaker the readings, the better the news it would be for mortgage rates.
The University of Michigan’s revision to their Index of Consumer Sentiment for February will close out the week’s calendar just before 10:00 AM ET tomorrow. Current forecasts show this index rising slightly from its preliminary estimate of 90.7. This index is fairly important because it helps us measure consumer confidence that translates into consumer willingness to spend, but is not considered to be a major market mover. This means it will probably not have a significant impact on mortgage rates, especially with GDP revision and Personal Income & Outlays reports being released the same day.