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Thursday’s bond market has opened in positive territory following weaker than expected economic news. The major stock indexes are mixed with the Dow down 31 points and the Nasdaq up 7 points. The bond market is currently up 5/32, but due to weakness late yesterday, this morning’s improvement in mortgage rates should be relatively minimal if comparing to Wednesday’s morning pricing.
The first of this morning’s two economic reports was January’s Retail Sales data at 8:30 AM ET that showed a 0.4% decline in retail-level sales last month when analysts were predicting no change. Even a secondary reading that excludes more volatile and pricey auto transactions was flat when it was expected to rise slightly. In addition, there were 0.3% and 0.4% downward revisions respectively to December’s readings for both. This means consumers spent less money than was thought over the past two months, indicating weaker than expected economic conditions. That makes the data very good news for the bond market and mortgage rates.
We also got last week’s unemployment figures early this morning. They revealed that 339,000 new claims for unemployment benefits were filed last week, up from the previous week’s unrevised 331,000. Since this indicates a slightly softer employment sector over the week, we can consider this data slightly good news for the bond and mortgage markets. But since this is only a weekly picture of initial claims, its impact on this morning’s trading has been minimal.
We also have day two of Fed Chairman Yellen’s congressional testimony on the status of the economy and monetary policy from the Fed’s perspective. She will be appearing before the Senate Banking Committee at 10:30 AM ET this morning. Her prepared statement will likely differ little from Tuesday’s version, so any market reaction will probably come from responses during the Q&A portion of the hearing. It is fairly common to see minor movement in the markets during the second day of these proceedings, but it rarely creates a significant move in mortgage rates.
There is also another Treasury auction taking place today that may influence the bond market and possibly mortgage rates. The Treasury will sell 30-year Bonds today and will post results of the sale at 1:00 PM ET. If investor demand is strong, we could see strength in the broader bond market during afternoon trading and possibly an intra-day improvement to mortgage rates. Yesterday’s 10-year Note sale had mixed results with a couple of the indicators we use to gauge investor demand showing weak readings while others were decent. However, the bond market extended its morning losses shortly after results of the sale were posted, not giving us too much to be optimistic about in today’s auction. That doesn’t necessarily mean we will have a weak sale today and a negative reaction to it in the mortgage market, but it does leave little to look forward to.
Tomorrow has two moderately important economic reports being posted. January’s Industrial Production data will be released at 9:15 AM ET tomorrow. It gives us a measurement of manufacturing sector strength by tracking output at U.S. factories, mines and utilities and can have a moderate impact on the financial markets. Analysts are expecting to see a 0.3% increase in production from December to January. A decline in output would be good news as it would indicate weaker than thought manufacturing activity and should push bond prices higher, lowering mortgage rates tomorrow morning.
February’s preliminary reading to the University of Michigan’s Index of Consumer Sentiment will be released just before 10:00 AM ET tomorrow. This index measures consumer willingness to spend and also usually has a moderate impact on the financial markets. If it shows an increase in consumer confidence, the stock markets may move higher and bond prices could fall. It is currently expected to come in at 80.2, down from January’s final reading of 81.2. That would indicate consumers were a little less optimistic about their own financial situations than last month and are less likely to make large a purchase in the near future. Since consumer spending makes up over two-thirds of the U.S. economy, this would be considered slightly favorable news for bonds and mortgage pricing.