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Friday’s bond market has opened up slightly, extending yesterday afternoon’s strength. The stock markets are mixed but relatively calm with the Dow u1 24 points and the Nasdaq down 5 points. The bond market is currently up 3/32, which with strength late yesterday should improve this morning’s mortgage rates by approximately .250 of a discount point if comparing to Thursday’s early pricing.
Yesterday’s 30-year Treasury Bond auction wasn’t as well received as Wednesday’s 10-year Note sale. The indicators we use to measure investor demand gave mixed results, but we can hardly call it a weak sale. That helped boost bond prices slightly during afternoon trading although it wasn’t the biggest cause of the afternoon rally. Renewed concerns about Ukraine and an apparent showdown with Russia in the immediate future caused a flight to safety move where funds were shifted into bonds. That led to afternoon improvements in mortgage rates from many lenders.
The first of today’s two pieces of economic data was February’s Producer Price Index (PPI) at 8:30 AM ET. It revealed a 0.1% decline in the overall reading and a 0.2% drop in the core data. Both readings were weaker than expected by a margin of 0.3%. That is a fairly significant variance from forecasts, particularly in the more important core reading that excludes more volatile food and energy prices. This indicates inflation at the producer level of the economy was softer than many had thought, making the data great news for long-term securities such as mortgage bonds.
Also posted this morning was March’s Index of Consumer Sentiment from the University of Michigan. They announced a reading of 79.9 late this morning that was short of forecasts. Analysts were expecting to see a reading of 82.0 that was slightly higher than February’s final reading. The decline points towards weakening consumer confidence in their own financial and employment situations, meaning they are less likely to make a large purchase in the near future. Since weaker consumer spending means weaker economic growth, we can consider this data favorable to the bond and mortgage markets.
Next week will be another active week for mortgage rates with plenty of economic data scheduled and another FOMC meeting following by a press conference with Fed Chairman Yellen. The crisis in Ukraine may also come to a head over the weekend or early next week that could rattle the global financial markets. That volatility should benefit bonds and mortgage rates as investors seek safe-haven in bonds. There is moderately important data set for release Monday (February’s Industrial Production), but I suspect that geopolitical news will take center stage early in the week. There is the potential for a downward move in bond yields and mortgage rates next week, especially if Ukraine/Russia issue does not get resolved. On the other hand, if further progression can be averted and we get some stronger than expected results from the economic and Fed events, we could see mortgage rates spike noticeably higher next week. Look for details on the week’s calendar in Sunday e! vening’s weekly preview.