Thursday’s bond market has opened in negative territory again despite weaker than expected inflation data. The major stock indexes are showing minor losses with the Dow down 7 points and the Nasdaq down 10 points. The bond market is currently down 3/32 (1.77%), but due to gains late yesterday we should see little change in this morning’s mortgage rates.
We saw some strength in bonds late yesterday, mostly a result of a strong 10-year Treasury Note auction. Many lenders improved rates during afternoon trading, so this morning’s weakness should offset that downward revision, keeping us at Wednesday’s morning rates. The Beige Book didn’t give us favorable results, showing strength in the labor market and earnings since the last update. That news helped prevent bonds from moving higher, but didn’t erase the move that followed the auction.
The more important of this morning’s two economic releases was March’s Consumer Price Index (CPI) at 8:30 AM ET. It showed an increase of 0.1% in both the overall and core readings, indicating inflationary pressures at the consumer level of the economy remain subdued. This is good news for long-term securities such as mortgage-related bonds, especially since analysts were expecting increases of 0.3% and 0.1% respectively.
Also posted early this morning was last week’s unemployment numbers that revealed 253,000 new claims for benefits. That was well below forecasts of 268,000 and the revised total of 270,000 from the previous week, hinting that the employment sector strengthened last week. Signs of economic strength or growth are usually bad news for the bond market. However, this report is not the cause of this morning’s bond selling. It is only a weekly report, so its impact on trading and mortgage rates is usually minimal.
Finally, we have today’s 30-year Bond auction to watch. Results of the sale will be posted at 1:00 PM ET. Therefore, any reaction will come during early afternoon trading as we saw yesterday. The 10-year Note sale went very well, leaving us optimistic about today’s auction. A strong level of demand for the securities should boost the broader bond market and possibly lead to an improvement in rates later today. On the other hand, a noticeably weak interest may cause bond prices to fall further and mortgage rates to revise higher.
Tomorrow morning has two pieces of economic data worth watching. The first of the day will be March’s Industrial Production data at 9:15 AM ET. It tracks output at U.S. factories, mines and utilities, translating into an indication of manufacturing sector strength. Current forecasts are calling for no change in the level of production from February’s level. This data is considered to be only moderately important to rates, so it will take more than just a slight variance to influence bond trading and mortgage pricing. Signs of manufacturing sector strength are considered negative news for mortgage rates, while a large decline in output would be favorable news for the bond market and mortgage shoppers.
The University of Michigan’s Index of Consumer Sentiment will be released at 9:55 AM ET tomorrow. This index will give us an indication of consumer confidence, which hints at consumers’ willingness to spend. If confidence is rising, consumers are more apt to make large purchases. But, if they are growing more concerned of their personal financial or employment situations, they probably will delay making that purchase. This influences future consumer spending data and can have a moderate impact on the financial markets. Good news would be a sizable decline from March’s 91.0 reading. Current forecasts are calling for a reading of approximately 91.9.