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Wednesday’s bond market has opened up slightly even though today’s only economic data showed stronger than expected results. The stock markets are showing gains also with the Dow up 53 points and the Nasdaq up 18 points. The bond market is currently up 2/32, which should improve this morning’s mortgage by approximately .125 of a discount point.
The Commerce Department announced late this morning that sales of newly constructed homes rose 9.6% last month, exceeding forecasts. Analysts were expecting to see a decline, so the data indicates the new home portion of the housing sector was stronger than thought last month. That makes the data negative for the bond market and mortgage rates, but fortunately the bond market doesn’t seem to be concerned.
Later today, the first of this week’s two relatively important Treasury auctions will be held that may influence bond trading enough to affect mortgage rates. There will be an auction of 5-year Notes today and 7-year Notes tomorrow. Neither of these sales will directly impact mortgage pricing, but they can influence general bond market sentiment. If the sales go poorly, we could see broader selling in the bond market that leads to upward revisions to mortgage rates. However, sales with higher levels of investor demand usually make bonds more attractive to investors and brings additional funds into the bond market. The buying of bonds that follows usually translates into lower mortgage rates.
We have a couple of events scheduled for tomorrow that are worth watching. The first is the weekly unemployment update from the Labor Department at 8:30 AM ET. They are expected to announce that 335,000 new claims for unemployment benefits were filed last week. This would be a slight change from the previous week’s 336,000. The higher the number of initial claims, the better the news it is for the bond and mortgage markets because rising claims indicates a softening employment sector. However, since this is a weekly report instead of a monthly or quarterly tracking period, it usually takes a wide variance from forecasts for the data to influence mortgage rates.
January’s Durable Goods Orders data will also be released at 8:30 AM ET tomorrow morning. This report gives us an important measurement of manufacturing sector strength by tracking orders at U.S. factories for items expected to last three or more years. Products such as electronics, refrigerators, airplanes and autos are examples of these big-ticket items. A larger decline than the 1.1% that is expected would be good news for the bond market and mortgage rates as it would point towards manufacturing sector weakness. This data is known to be quite volatile from month-to-month, so large swings are fairly normal. A small variance from forecasts would not cause much concern or joy in the markets.
Lastly, Fed Chairman Yellen will deliver day two of the Fed’s semi-annual testimony on the status of the economy and monetary policy late tomorrow morning. She will be speaking to the Senate Banking Committee, which was postponed from its originally scheduled date two weeks ago due to weather. Day one in front of the House Financial Services Committee was completed back then. Since the prepared statement by Chairman Yellen is expected to mirror her previous appearance, any noticeable reaction in the financial or mortgage markets will likely come as a result of a response during the Q&A portion of the proceeding. She will appear at 10:00 AM ET, so any reaction will probably come during late morning trading.