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Thursday’s bond market has opened in positive territory even though this morning’s only relevant economic data appeared to be stronger than expected. The stock markets are flat during early trading with the both the Dow and Nasdaq up a couple points. The bond market is currently up 11/32, which should improve this morning’s mortgage rates by approximately .125 of a discount point.
Yesterday’s 10-year Treasury Note auction actually went extremely well. Several
of the indicators we use to gauge investor demand showed strong levels of
investor interest, leading to strength in bonds yesterday afternoon.
Unfortunately, the improvement erased weakness that took place between morning rate sheets and the time results were posted at 1:00 PM ET, preventing many lenders from posting an intra-day downward revision to rates yesterday. However, it does give us something to be optimistic about in today’s 30-year Bond auction. If today’s sale also is met with strong investor demand, we should see afternoon strength in the broader bond market and possibly a small improvement to mortgage pricing.
The Labor Department gave us this morning’s only relevant economic data with
the release of last week’s unemployment numbers. The headline number of 292,000 new claims for unemployment benefits was the lowest since 2006 and looked to be troublesome for bonds and mortgage rates because analysts were expecting to see 327,000 new claims. However, the Labor Day holiday affected filings (government offices closed) as did a rumor that two states had technical issues with reporting complete figures. In other words, the data appears to be flawed and not a true weekly snapshot of the labor market, so its impact on this morning’s trading has been minimal. That lack of credibility will also carry into next week when we can expect to see a spike in initial claims in this week’s numbers because the missing data will appear in that report.
Tomorrow morning brings us the release of all three of this week’s monthly
economic reports, two of which are considered to be highly important to the
financial and mortgage markets. The first is August’s Retail Sales data at 8:30
AM ET. This Commerce Department report will give us a very important
measurement of consumer spending, which is extremely relevant to the markets because it makes up over two-thirds of the U.S. economy. Current forecasts are calling for a 0.4% increase in sales. Analysts are also calling for a 0.3% rise in sales if more volatile auto transactions are excluded. Larger than expected increases would be considered bad news for bonds and likely lead to an increase in mortgage pricing since it would indicate economic growth.
The Labor Department will post August’s Producer Price Index (PPI) early
tomorrow morning also, giving us an important measurement of inflationary
pressures at the producer level of the economy. There are two readings that
analysts follow in this release. They are the overall index and the core data
reading. The core data is the more important of the two since it excludes more
volatile food and energy prices. Analysts are predicting a 0.2% increase in the
overall index and a rise of 0.1% in the core data. Stronger than expected
readings could fuel inflation concerns in the bond market. That would be bad
news for bonds and mortgage rates because inflation is the number one nemesis of the bond market as it erodes the value of a bond’s future fixed interest payments. As inflation becomes more of a concern in the markets, bonds become less appealing to investors, leading to falling prices, rising yields and higher mortgage rates.
The last release of the week will be posted by the University of Michigan at
9:55 AM ET. Their Index of Consumer Sentiment will give us an indication of
consumer confidence, which projects consumer willingness to spend. If a
consumer’s confidence in their own financial situation is rising, they are more
apt to make large purchases in the near future. But, if they are growing more
concerned about their job security or finances, they probably will delay making
that large purchase. This influences future consumer spending data and
therefore, impacts the financial markets. It is expected to show a reading of
82.0 that would mean confidence was nearly unchanged from August’s level of
82.1. That would be considered slightly favorable news for bonds and mortgage
rates. Good news for mortgage shoppers would be a sizable decline in the index.
However, the Retail Sales and PPI releases will draw the most attention