Thursday’s bond market has opened in positive territory even though we got stronger than expected economic headlines. The stock markets are showing minor losses with the Dow down 42 points and the Nasdaq down 1 point. The bond market is currently up 8/32 (1.84%), but weakness late yesterday should keep this morning’s mortgage rates close to Wednesday’s early levels.
We saw some bond weakness late yesterday despite a pretty decent 5-year Treasury Note auction. Several benchmarks we use to gauge investor demand showed a fairly strong interest in the securities. While that didn’t seem to help much yesterday, it does allow us to be optimistic about today’s 7-year Note sale. Another strong level of investor demand should help boost bond prices this afternoon. Results will be posted at 1:00 PM ET, so any reaction will come during early afternoon trading.
The Commerce Department gave us the first of this morning’s two releases by posting April’s Durable Goods Orders at 8:30 AM ET. They announced an increase of 3.4% that exceeded expectations of a 0.6% rise in new orders for big-ticket products. However, a secondary reading that tracks orders excluding more volatile and costly transportation-related items, such as new airplanes, rose only 0.4% when analysts were predicting a 0.5% increase. The mixed results seemed to prevent much of a reaction to the report.
Also posted early this morning was last week’s unemployment figures. They showed that 268,000 new claims for unemployment benefits were filed last week, down from the previous week’s 278,000 initial claims. This is a sign that the employment sector strengthened last week, especially since forecasts were calling for 275,000 claims. Fortunately, this is only a weekly snapshot and has not had much of an influence on today’s mortgage pricing.
Tomorrow has two reports scheduled for release. One is the first revision to the 1st quarter Gross Domestic Product (GDP) at 8:30 AM ET. The GDP is the sum of all goods and services produced in the U.S. and is considered to be the best measurement of economic growth. Last month’s preliminary reading revealed a 0.5% annual rate of growth. Analysts expect an upward revision of 0.4% in this update, equating to economic growth of 0.9%. If the revision comes in much stronger than expected, we may see the bond market react negatively and mortgage rates move higher because it would mean the economy was stronger than thought last quarter. Since bonds tend to thrive in weaker economic conditions, a softer than predicted reading would be good news for mortgage rates.
The last mortgage-related data of the week will come from the University of Michigan just before 10:00 AM ET tomorrow morning when they update their Index of Consumer Sentiment for May. This type of data is watched fairly closely because when consumers are feeling more confident about their own financial situations, they are more likely to make a large purchase in the near future. Rising confidence and the higher levels of spending that usually follow are considered negative news for bonds and mortgage rates. Tomorrow’s report is expected to show a small downward revision to this month’s preliminary reading of 95.8. A higher reading would be considered bad news for bonds and mortgage pricing while a larger decline should help boost bond prices and lead to a slight improvement in rates.