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Friday’s bond market initially opened in positive territory again but has since slipped into negative ground despite somewhat favorable economic news and a mixed open in stocks. The Dow is currently up 8 points while the Nasdaq has lost 13 points. The bond market is currently down 3/32 (2.85%), however, strength late yesterday should prevent an increase in this morning’s mortgage rates. We should see this morning’s pricing still to be slightly better or equal to Thursday’s morning rates.
There were three moderately important economic reports posted this morning. The Commerce Department started this morning’s releases by posting December’s Housing Starts at 8:30 AM ET. They revealed a 9.8% decline in new construction starts of housing projects, the biggest monthly decline since April of last year. The number of groundbreakings was higher than forecasts, but an upward revision to November’s starts put the monthly percentage change very close to expectations. The large decline follows a huge increase between October and November and December’s winter storms that prevented work from taking place are allowing many analysts to downplay the drop. In other words, the data doesn’t really point towards a halt in the new home portion of the housing sector. Therefore, we can consider the data neutral to slightly positive for the bond market and mortgage rates.
At 9:15 AM ET this morning, we got December’s Industrial Production report. It showed a 0.3% increase in output at U.S. factories, mines and utilities, indicating modest growth in the manufacturing sector. The rise pegged forecasts, so it also is having little impact on this morning’s mortgage rates.
The third report of the morning and the final of the week was January’s preliminary reading to the University of Michigan’s Index of Consumer Sentiment at 9:55 AM ET. It came in at 80.4, falling short of the 83.0 that was expected and more importantly, down from December’s 82.5 reading. This means that surveyed consumers felt worse about their own financial and employment situations than many had thought and even worse than in December. Since waning confidence usually translates into weaker levels of consumer spending, we can consider the data favorable for the bond and mortgage markets.
Next week is a holiday-shortened week and is extremely light in terms of economic data that is relevant to mortgage rates. I see only two reports scheduled that have a chance of moving rates and they both come later in the week. The U.S. financial markets will be closed Monday in observance of the Martin Luther King Jr. holiday as will most mortgage lenders. The holiday could lead to some selling in bonds later today as investors look to protect some of their profits from recent bond improvements over the extended weekend. But if it happens, it should be minor.