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Tuesday’s bond market has opened down slightly with little to further fuel last week’s strength. The stock markets are starting the shortened week in positive territory with gains of 17 points in the Dow and 28 points in the Nasdaq. The bond market is currently down 2/32, but due to strength in trading late Friday, we still may see a slight improvement in this morning’s mortgage rates if comparing to Friday’s morning pricing. The financial and mortgage markets were closed yesterday in observance of the Martin Luther King Jr. holiday.
There is nothing of importance scheduled for release today that is likely to affect mortgage rates. If we see a sizable move in bonds or an intra-day revision to mortgage rates, it likely will be a result of a swing in stocks. With little data to influence mortgage rates this week, we can turn our attention to the major stock indexes. If stocks move higher, we will probably see bonds weaken and mortgage rates move slightly higher. On the other hand, if stocks go into selling mode, the result would likely be a shift of funds into bonds and mortgage rates moving lower.
This week brings us the release of only two pieces of monthly economic data for the markets to digest, but neither of them is considered to be highly important for mortgage rates. Both of those reports are scheduled for release at 10:00 AM ET Thursday. The first is December’s Existing Home Sales from the National Association of Realtors. This data will give us a measurement of housing sector strength and mortgage demand by tracking home resales in the U.S. It is expected to show little change in sales from November’s level, meaning the housing sector was flat last month. Ideally, bond traders would like to see a decline in sales that would point toward housing sector weakness because a weakening housing sector makes broader economic growth more difficult. However, as long we don’t see a significant surprise in its results, it shouldn’t have a noticeable impact on Thursday’s mortgage rates.
December’s Leading Economic Indicators (LEI) is the other report of the week. It will be posted at 10:00 AM ET Thursday morning also. The Conference Board, who is a New York-based business research group compiles the data and releases this report. It attempts to predict economic activity over the next several months, but posted by a non-governmental agency, it is not considered to be of high importance to the financial and mortgage markets. Thursday’s release is expected to show a 0.2% increase, meaning the indicators are predicting a modest increase in economic activity this spring. Theoretically, that would be fairly good news for mortgage rates because long-term securities such as mortgage-related bonds tend to do better in weaker economic conditions. But as long as we don’t see a much stronger than predicted increase, I don’t think this data will have much of an influence on mortgage pricing either.
Overall, it appears that we may have a fairly quiet week ahead of us in the mortgage market. That is unless we see something drastic happen in stocks. The benchmark 10-year Treasury Note yield is currently at 2.84%. I see a relatively minor level of resistance at 2.80% that could prevent bonds from improving too much more without something of significance to drive trading. With an extremely light week in terms of economic data and other events that traditionally affect bonds and mortgage rates, I believe it could be difficult for the 10-year yield to break below that level and remain there this week.