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Thursday’s bond market has opened in negative territory, extending yesterday’s afternoon selling. The stock markets are showing modest gains with the Dow up 29 points and the Nasdaq up 6 points. The bond market is currently down 7/32, which with yesterday’s afternoon weakness should push this morning’s mortgage rates higher by approximately .250 – .375 of a discount point over Wednesday’s morning pricing.
Yesterday’s afternoon weakness in bonds was mostly a result of the FOMC minutes that were posted at 2:00 PM. The minutes did give us some clearer insight into the Fed’s thought process on a couple issues. One was consideration of an announcement that their monthly rate of bond buying would be reduced by $10 billion at each FOMC meeting rather than leaving the markets to assume or guess. There was also some discussion that led many to believe an increase in key short-term interest rates may be coming sooner than many analysts were previously expecting. Overall, most of the tidbits taken from the minutes were not favorable to the bond market. That led to selling in bonds and caused many lenders to revise rates higher late yesterday.
This morning’s first of three economic reports showed that 336,000 new claims for unemployment benefits were filed last week. This was a slight decline from the previous week’s unrevised total of 339,000 and just above forecasts of 335,000 initial claims. This was not enough of a move in this weekly report to draw much attention in the markets. We should consider it neutral for the bond market and mortgage rates.
The second report of the day was much more important to the markets, particularly bonds but also didn’t reveal much of a surprise. The Labor Department announced at 8:30 AM ET that January’s Consumer Price Index (CPI) rose 0.1% and that the more important core reading that excludes more volatile food and energy prices also rose 0.1%. The overall reading was expected to come in at up 0.2% and the core reading pegged forecasts. The results were neutral to slightly positive for bonds and rates. Accordingly, this data also failed to move the markets this morning or affect mortgage pricing.
January’s Leading Economic Indicators (LEI)was the final report of the morning. At 10:00 AM ET, the Conference Board announced that their LEI rose 0.3% last month. This was slightly weaker than the 0.4% that was expected, making it somewhat good news for the bond market. However, this is a minor report with a slight variance from forecasts, so we have seen little reaction to the news.
The final report of the week is January’s Existing Home Sales report at 10:00 AM ET tomorrow. The National Association of Realtors tracks home resales throughout the country, giving us a measurement of housing sector strength. It is expected to show a decline in sales of existing homes, meaning the housing sector softened last month. Ideally, the bond market would like to see a sizable decline in sales because weak housing makes broader economic growth more difficult. Since long-term securities such as mortgage bonds tend to thrive during weaker economic conditions, weak housing numbers would be good news for mortgage rates.