Tuesday’s bond market has opened in negative territory despite much weaker than expected economic news and minor stock losses. The Dow is currently down 23 points while the Nasdaq has lost 10 points during early trading. The bond market is currently down 8/32 (1.95%), which should push this morning’s mortgage rates higher by approximately .125 of a discount point.
Today’s only relevant economic data was April’s Consumer Confidence Index (CCI) at 10:00 AM ET. The Conference Board announced that their CCI fell to 95.2 this month, coming up well short of analysts’ expectations. Forecasts were calling for an increase, pushing the index upward by almost a point to 102.2. The large decline means that surveyed consumers were much less optimistic about their own financial situations than many had thought. Because falling confidence levels usually translates into weaker consumer spending, we can consider this report very good news for bonds and mortgage rates. Unfortunately, traders appear to be more concerned about tomorrow’s events than today’s news.
We also have a Treasury auction later today that has the potential to affect mortgage rates. 5-year Treasury Notes are being sold today while 7-year Notes will go tomorrow. Neither of these sales will directly impact mortgage pricing, but they can influence general bond market sentiment. If the sales go poorly, we could see broader selling in the bond market that leads to upward revisions to mortgage rates. On the other hand, strong sales usually make government securities more attractive to investors and bring more funds into bonds. The buying of bonds that follows usually translates into lower mortgage rates. Results of the sales will be posted at 1:00 PM ET each auction day, so look for any reaction to come during afternoon hours.
Tomorrow is going to be an interesting day to say the least. It starts at 8:30 AM ET with the release of the preliminary version of the 1st Quarter Gross Domestic Product (GDP). This is arguably the single most important report that we see on a regular basis. The GDP is the sum of all products and services produced in the U.S. and is considered to be the best measurement of economic growth or contraction. I expect this report to cause sizable movement in the financial markets and therefore the mortgage market also. Analysts are expecting it to show that the economy grew at an annual rate of 1.0% during the first three months of this year. That would be a much slower pace than the 2.2% pace of the final quarter of last year. A smaller increase or a decline would be considered good news for mortgage rates. But a stronger than expected reading would almost certainly cause stock prices to rise and bond prices to fall, leading to higher mortgage rates tomorrow morning.
This week’s FOMC meeting will adjourn at 2:00 PM ET tomorrow afternoon. It will likely yield an announcement of no change to key short-term interest rates, but we may still see some volatility in the markets following the post-meeting statement. If the statement gives any hint about when they expect to make the first increase to key short-term interest rates, we could see another sizable change to mortgage rates during afternoon trading.