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Thursday’s bond market has opened up relatively flat with little economic news to drive trading. The stock markets are showing early weakness with the Dow down 59 points and the Nasdaq down 15 points. The bond market is currently up 3/32, but to some selling late yesterday this morning’s mortgage rates should be fairly close to yesterday’s morning pricing.
Yesterday’s afternoon release of the FOMC meeting minutes did influence bond trading and mortgage rates even though there weren’t too many surprises in them. They appeared to show that the Fed was concerned about the reaction the markets would have to a reduction in the current bond buying program (QE3). Members were specific to show a slow, measured pace of easing the bond purchases to minimize that reaction. The decision to take the first tapering move was mostly due to gains in the employment sector that are expected to continue, strongly indicating that we should see more reductions in the near future. None of that was major news, but bond yields hit highs of the day right after the minutes were released before regaining some of those intra-day losses. That led to some lenders revising rates slightly higher yesterday afternoon.
The Labor Department gave us today’s only relevant economic data with the release of last week’s unemployment numbers. They announced early this morning that 330,000 new claims for unemployment benefits were filed last week, short of the 338,000 that was expected and down from the previous week’s revised total of 345,000. This means that fewer people filed for new benefits than many had thought, and by a fairly wide margin less than the previous week. Because that indicates the employment sector strengthened slightly last week, we should consider the data negative for the bond market and mortgage rates.
Today also has the 30-year Treasury Bond auction that may influence bond trading and mortgage pricing later today. Yesterday’s 10-year Note sale went okay with several of the indicators we use to judge investor demand showing average or just a bit better results. That helps us remain relatively optimistic about today’s 30-year Bond sale. If it goes well, meaning it was met with a strong interest from investors, we could possibly see the bond market strengthen during afternoon trading. But a lackluster interest from buyers, particularly international investors, could lead to broader bond selling after results are posted at 1:00 PM ET. The selling in bonds would likely result in afternoon upward revisions to mortgage rates while a strong sale could help improve pricing.
Tomorrow’s only economic news is considered key data that is highly influential to the financial and mortgage markets. The Labor Department will post December’s Employment report at 8:30 AM ET tomorrow. This data is arguably the single most important monthly release we see as it gives us the national unemployment rate, the number of jobs added or lost during the month and average hourly earnings. Rising unemployment, a small increase in payrolls and flat earnings would be ideal news for the bond market. Current forecasts are calling for no change from November’s unemployment rate of 7.0%, 197,000 new jobs added to the economy and an increase in earnings of 0.2%. If we see weaker than expected results, the bond market should rally and stocks should fall, improving mortgage rates noticeably lower tomorrow morning. However, stronger than expected readings will likely raise optimism about the economy, pushing stocks and mortgage rates sharply higher.
There is a high probability of seeing a fair amount of volatility in the markets tomorrow morning as a result of this data. It is always risky to float an interest rate ahead of this data, especially if closing in the near future. I believe that yesterday’s ADP report may have skewed some opinions on what tomorrow’s government report will show.