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Friday’s bond market has opened up slightly despite stronger than expected economic news. Another round of early stock weakness has helped support bond prices this morning. The Dow is currently down 88 points while the Nasdaq has lost 18 points. The bond market is currently up 3/32, which with yesterday’s afternoon strength should improve this morning’s mortgage rates by approximately .250 of a discount point over Thursday’s early pricing.
As stocks sank yesterday from where they were when we posted Thursday’s report, bonds strengthened. As the day progressed and the major stock indexes continued their slide, bonds rallied and many lenders posted intraday improvements to their mortgage rates. The Dow eventually closed with a 266 point loss while the Nasdaq lost 129 points. What appeared to be a great day for the bond market and mortgage rates lost a little luster near the end of the day as the bond buying pulled back. Still, it ended up as a good session for bond traders and mortgage shoppers. And if we a similar pattern with stocks today, the downward move in mortgage rates should repeat itself again.
Bonds have made a nice move this week mostly as a result of stock weakness. The benchmark 10-year Treasury Note yield is currently at 2.61%, well below the 2.68 that appeared to be a resistance level. This is good news for mortgage shoppers because mortgage rates tend to follow bond yields and there doesn’t appear to be too heavy of a resistance level until we get down to the 2.4% area. My concern though is that this downward move has been triggered by stock losses and not weak results in key economic data. If stocks rebound, we could easily erase the recent flight-to-safety gains. Keep in mind, rates almost always spike higher much quicker than they drop lower. Therefore, enjoy the recent improvement but please proceed cautiously if still floating an interest rate and closing in the near future. If your closing data is set for the next week or two, I highly recommend locking a rate as soon as possible.
The Labor Department gave us the first of this morning’s two economic reports when they posted March’s Producer Price Index (PPI) at 8:30 AM ET. Their announcement of a 0.5% increase in the overall PPI and a 0.5% rise in the core data is a head-turner. Especially when analysts were expecting to see a 0.1% increase in both readings. Does this mean that inflation is rising rapidly and the bond market should be concerned? Not exactly because recent changes to how the PPI is calculated has made it difficult to predict its results. The sizable increase is certainly worth watching, but fortunately for mortgage rates the variance from forecasts doesn’t seem to be of much concern this morning.
Late this morning, the University of Michigan posted their Index of Consumer Sentiment for April. It revealed a reading of 82.6 that was higher than forecasts and its highest level since last July. The increase indicates surveyed consumers were more optimistic about their own financial and employment situations than many had thought. That makes the data negative for the bond and mortgage markets because rising confidence usually means consumers are more apt to spend money and make large purchases. Since consumer spending makes up over two-thirds of the U.S. economy, we should consider the results bad news for mortgage rates.
Next week is moderately busy with a small handful of relevant economic reports set for release. It is worth noting though that a couple of those reports are more important than others and it is a holiday-shortened week. One of the more important releases we get each month, Retail Sales, will be posted early Monday morning. It will give us insight into consumer spending activity that fuels economic growth.