Tuesday’s bond market has opened in negative territory despite no relevant economic data being released today. The major stock indexes are mixed with the Dow up 56 points and the Nasdaq down 4 points. The bond market is currently down 11/32 (1.76%), erasing strength late yesterday. However, it is those gains from yesterday’s afternoon trading that should prevent an increase in this morning’s mortgage pricing.
The Commerce Department will start this week’s activities with the release of March’s Retail Sales data at 8:30 AM ET tomorrow morning. This piece of data gives us a very important measurement of consumer spending. Spending is relevant because consumer level spending makes up over two-thirds of the U.S. economy. Forecasts are calling for a 0.1% increase in sales from February to March. If we see a larger increase in spending, the bond market will likely fall and mortgage rates will rise as it would indicate consumers are spending more than thought, fueling economic growth. However, a weaker than expected level of sales could push bond prices higher and mortgage rates lower tomorrow morning.
Also early tomorrow morning, the Labor Department will post March’s Producer Price Index (PPI). It will give us an important measurement of inflationary pressures at the producer level of the economy. There are two portions of the report that analysts watch- the overall reading and the core data. The core data is more important to market participants because it excludes more volatile food and energy prices. If it shows rapidly rising prices, inflation fears may hurt bond prices since it erodes the value of a bond’s future fixed interest payments and cause the Fed to raise key short-term rates sooner. A good size decline in prices would be good news for the bond market and mortgage rates. Current forecasts are calling for a 0.3% increase in the overall reading and a 0.2% rise in the core data.
The Federal Reserve’s Beige Book report will be posted during afternoon trading tomorrow. This report is named simply after the color of its cover but details economic conditions throughout the U.S. by Fed region. Since the Fed relies heavily on the contents of this report during their FOMC meetings, its results can have a fairly big impact on the financial markets and mortgage rates if it reveals any significant surprises. Generally speaking, signs of strong economic growth or inflation rising from the last update would be considered negative for bonds and mortgage rates. Slowing economic conditions with little sign of inflationary pressures would be ideal for mortgage rates. The report will be released at 2:00 PM ET, so any reaction will come during mid-afternoon hours.
Tomorrow also brings us the first of this week’s two Treasury auctions that may affect mortgage rates. 10-year Notes will go to sale tomorrow while 30-year Bonds will be auctioned Thursday. We could see some weakness in bonds ahead of the sales as participating firms sell current holdings to prepare for them. This weakness is usually only temporary if the sales are met with a decent demand. The results of the auctions will be posted at 1:00 PM ET each day. If the demand from investors was strong, the bond market could rally during afternoon trading, leading to lower mortgage rates. If the sales were met with a poor demand, the afternoon weakness may cause upward revisions to mortgage pricing during afternoon trading.