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Thursday’s bond market has opened in negative territory again following the release of mixed economic data. The stock markets are mixed with the Dow down 67 points and the Nasdaq up 6 points. The bond market is currently down 10/32, which should push this morning’s mortgage rates higher by approximately .125 – .250 of a discount point from yesterday’s morning pricing.
Yesterday’s 10-year Treasury Note auction didn’t go particularly well. Several of the benchmarks we use to gauge investor demand pointed towards average or below-average interest. We have had weaker sales, but the lack of a strong demand considering where yields currently are helped fuel selling during afternoon hours yesterday. That doesn’t give us a lot to be optimistic about in today’s 30-year Bond auction. If we see better interest in today’s sale, we could see afternoon strength in bonds instead of the weakness that we saw yesterday. Results will be posted at 1:00 PM ET, so any reaction will likely come during early afternoon trading.
The week’s first relevant economic data was released early this morning. The Commerce Department released November’s Retail Sales report at 8:30 AM ET, announcing an increase of 0.7% in retail-level sales last month. This was slightly stronger than the 0.6% that was expected, meaning consumers spent more than many had thought. Even a secondary reading that tracks sales excluding more pricey and volatile auto transactions came in a bit stronger than forecasts. The variances in November’s data weren’t enough to get too concerned about, but upward revisions to both readings for October helped make the data negative for the bond market and mortgage rates.
Last week’s unemployment figures were also posted early this morning. The Labor Department said that new claims for unemployment benefits spiked to 368,000 last week, greatly exceeding forecasts of 315,000 new claims and the previous week’s revised total of 300,000. It was also the largest weekly increase in a little more than a year. It appears other than a later than usual Thanksgiving holiday, there is no specific cause for the jump. Therefore, we can consider the data very good news for the bond and mortgage markets because rising claims indicates a weakening employment sector. The bad news is that this is only a weekly report, so its impact on today’s bond trading and mortgage pricing was limited compared to what such a surprise would have in a monthly report.
Tomorrow morning brings us the release of November’s Producer Price Index (PPI) at 8:30 AM. It measures inflationary pressures at the producer level of the economy and is considered to be an important piece of data for the bond market. There are two portions of the index that are used- the overall reading and the core data reading. The core data is the more important of the two because it excludes more volatile food and energy prices, giving a more stable reading for analysts to consider. If it reveals stronger than expected readings tomorrow, indicating that inflationary pressures are rising, the bond market will probably react negatively and drive mortgage rates higher. If we see in-line or weaker than expected numbers, the bond market should respond well and mortgage rates could fall. Current forecasts are showing a 0.1% decline in the overall index and a 0.1% rise in the core data.