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Thursday’s bond market has opened down slightly following the release of economic data that was just a bit stronger than expected. The stock markets are showing modest gains with the Dow up 24 points and the Nasdaq up 2 points. The bond market is currently down 3/32, but due to strength late yesterday we should still see an improvement of approximately .125 of a discount point in this morning’s mortgage rates.
Yesterday’s 10-year Treasury Note auction actually went very well. Most of the benchmarks we use to gauge investor demand showed a very strong interest in the securities. That helped boost prices in the broader bond market during afternoon trading yesterday and led to some lenders issuing a small intra-day improvement to their rates. It also allows us to be pretty optimistic about today’s 30-year Bond sale. If today’s auction is met with similar interest as yesterday’s sale, we could again see bond prices improve during afternoon hours. Depending on the size of the move in bonds, we could get an improvement to mortgage rates later today also. On the other hand, a weak sale may pressure the bond market. Results of the sale will be posted at 1:00 PM ET, so any reaction will come during early afternoon trading.
There were two pieces of economic data posted early this morning, although one was much more important to the markets than the other. The key piece of data was February’s Retail Sales report at 8:30 AM ET. The Commerce Department announced a 0.3% increase in consumer or retail-level spending last month- the first increase in three month. This was just slightly stronger than the 0.2% increase that was forecasted. Since consumer spending makes up over two-thirds of the U.S. economy, rising levels of spending usually translates into stronger economic growth that makes long-term bonds less appealing to investors. Even a secondary reading that excludes more volatile and pricey auto sales showed similar results. That means February’s data was slightly negative for the bond market and mortgage rates. However, fairly sizable downward revisions to January’s figures helped to negate the impact February’s data had on this morning’s trading and prevented a small inc! rease in mortgage rates.
The second report of the morning was considered less important to the markets but gave us much clearer results. It revealed that 315,000 new claims for unemployment benefits were filed last week. This was noticeably lower than the 329,000 that was predicted and the lowest level since late November. Since analysts were expecting to see an increase in initial claims that would have hinted at a softening employment sector, we need to consider this data negative for the bond market and mortgage rates. The drop in new claims points toward a strengthening labor market, at least during last week. Fortunately for mortgage shoppers though, this was only a weekly set of numbers and its impact on today’s trading has been relatively minimal.
Tomorrow has the final two relevant economic reports of the week, starting with February’s Producer Price Index (PPI) at 8:30 AM ET. This important index measures inflationary pressures at the producer level of the economy. There are two portions of the index- the overall reading and the core data. The core data is more important and watched more closely because it excludes more volatile food and energy (including gasoline) prices. If the index shows a large increase, inflation concerns will rise, making long-term investments such as mortgage-related bonds less attractive to investors. This would lead to higher mortgage rates tomorrow morning. Current forecasts are calling for a 0.2% increase in the overall reading and a 0.1% increase in the core data.
Just before 10:00 AM ET tomorrow, the University of Michigan will post their Index of Consumer Sentiment for March. This moderately important index gives us a measurement of consumer willingness to spend. If consumers are more confident in their own financial and employment situations, then they are more apt to make large purchases in the near future. This helps fuel consumer spending levels and overall economic growth. A drop in confidence will probably hurt the stock markets and boost bond prices, leading to lower mortgage rates if the PPI shows no surprises. Bad news for bonds and mortgage rates would be rising confidence. It is expected to show a reading of 82.0, which would be a small increase from February’s final reading 81.6.