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Wednesday’s bond market has opened in negative territory again as yesterday’s selling extends into today’s session. The stock markets are much more subdued than they were yesterday with the Dow down 14 points and the Nasdaq up 12 points. The bond market is currently down 12/32, which should push this morning’s mortgage rates higher by approximately .250 of a discount point if comparing to yesterday’s morning pricing.
Today has no economic data being released that is relevant to mortgage rates. We do however, have the first of this week’s two Treasury auctions that are expected to influence mortgage-related bonds. The Treasury will sell 10-year Treasury Notes today and 30-year Bonds tomorrow. Today’s auction is the more important of the two and has a better chance of affecting mortgage rates than tomorrow’s sale. If these sales are met with a strong demand from investors, we should see the broader bond market move higher during afternoon trading. On the other hand, a lackluster interest from buyers, particularly international investors, would indicate a waning appetite for longer-term U.S. securities and lead to bond selling. The selling in bonds could result in upward afternoon revisions to mortgage rates after results are posted at 1:00 PM ET.
There are two pieces of economic data scheduled for release tomorrow that are worth watching. The first and clearly the more important of the two is January’s Retail Sales data at 8:30 AM ET. This Commerce Department report is very important to the financial markets because it measures consumer spending. Since consumer spending makes up over two-thirds of the U.S. economy, any related data is followed quite closely. If tomorrow’s report reveals weaker than expected retail-level sales, the bond market should thrive and mortgage rates will fall since it would be a sign that the economy is not as strong as many had thought. However, a stronger reading could lead to stock strength and higher mortgage rates. Analysts are currently expecting to see no change from December’s level of spending.
The second piece of data will also be posted at 8:30 AM ET. That is when we will get last week’s unemployment numbers. The release is expected to show that 335,000 new claims for unemployment benefits were filed last week, up from the previous week’s 331,000. Rising initial claims is an indication of a softening employment sector, so the higher the number of claims, the better the news it is for the bond market and mortgage rates. It is worth noting though, this report is basically only a weekly snapshot, so its’ impact on the financial and mortgage markets is usually minimal unless it shows a significant variance from forecasts.
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 tomorrow. Her prepared statement will likely differ little from yesterday’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. I am expecting the retail sales data to drive bond trading and mortgage rates tomorrow morning, but we will still be watching the hearing for any surprises.