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Thursday’s bond market has opened relatively flat despite unfavorable economic news. The stock markets are helping boost bonds with a negative open. The Dow is currently down 8 points while the Nasdaq has lost 23 points. The bond market is currently up 3/32 (2.67%), which with yesterday’s late strength should improve this morning’s mortgage rates by approximately .125 – .250 of a discount point.
Yesterday afternoon’s release of the minutes from the most recent FOMC meeting didn’t reveal any significant surprises but did give us some insight into how Fed members voted on different topics during the meeting. One thing they showed was the decision to move away from specific targets, such as the unemployment rate, that would trigger the Fed raising key short-term interest rates. It was the Fed’s stance previously that the unemployment rate and inflation would need to be at set thresholds before they would make a move. The decision change from that to a broader and more vague stance caused volatility in the markets when it was announced following the meeting adjournment. The minutes released yesterday showed that the decision to do so was a strong majority amongst voting members. Not necessarily earth-shattering news, but it does indicate a wide consensus that likely will not be reversed anytime soon. Overall, the minutes didn’t give us anything too conc! erning or joyous and despite that, the bond market strengthened after the minutes were posted.
The only piece of economic data worth watching this morning was last week’s unemployment figures at 8:30 AM ET. This morning’s release showed that initial claims for unemployment benefits fell to 300,000 last week from a revised 332,000 of the previous week. This was well below forecasts and the lowest level we have seen in almost 7 years. That indicates employment sector strength and makes the data negative for the bond market and mortgage rates. Fortunately mortgage shoppers though, this is only a weekly report and bond traders appear to have shrugged off the news.
We also have today’s 30-year Bond auction results that may influence the broader bond market and possibly mortgage rates later today. Yesterday’s 10-year auction was met with an average or mediocre level of interest from investors. That doesn’t give us much to be optimistic about in today’s sale. If there was a strong demand for the securities, we could see bond prices move higher and mortgage rates revise lower this afternoon. Results will be posted at 1:00 PM ET, so any reaction will likely come during early afternoon trading.
Tomorrow does have some important economic data scheduled for release. The Labor Department will start the day by posting March’s Producer Price Index (PPI) at 8:30 AM ET. It will give us an important measurement of inflationary pressures at the producer level of the economy. There are two portions of the report that analysts watch- the overall reading and the core data reading. The core data is more important to market participants because it excludes more volatile food and energy prices. If it shows rapidly rising prices, inflation fears may hurt bond prices since it erodes the value of a bond’s future fixed interest payments, leading to higher mortgage rates. A good sized decline in prices would be good news for the bond market and mortgage rates. Current forecasts are calling for a 0.1% increase in the overall reading and a 0.1% rise in the core data.
The final release of the week is the University of Michigan’s Index of Consumer Sentiment at 9:55 AM ET tomorrow. Their consumer sentiment index will give us an indication of consumer confidence, which hints at consumers’ willingness to spend. If confidence is rising, consumers are more apt to make large purchases. But, if they are growing more concerned of their personal financial or employment situations, they probably will delay making that purchase. This influences future consumer spending data and can have a moderate impact on the financial markets. Good news would be a sizable decline from March’s 80.0 reading. Current forecasts are calling for a reading of approximately 81.0.