Thursday’s bond market has opened relatively flat despite favorable results in a key economic reading. The stock markets are mixed with the Dow down 68 points and the Nasdaq up 8 points. The bond market is currently down 2/32 (1.86%), but due to a positive move following yesterday’s FOMC meeting adjournment, we should see this morning’s mortgage rates come in approximately .125 – .250 of a discount point lower than Wednesday’s morning pricing.
There were two economic reports posted this morning with one being much more important than the other. The big news was the preliminary version of the 1st Quarter Gross Domestic Product (GDP) reading that showed a 0.5% annual rate of growth. This was weaker than the 0.8% that was expected, meaning the economic was softer the first three months of the year than many had thought. Since bonds tend to thrive in weaker economic conditions, this is definitely good news for mortgage rates. Unfortunately, the markets don’t seem to be too concerned or excited about the reading.
Also at 8:30 AM ET this morning was the release of last week’s unemployment figures. It showed that 257,000 new claims for unemployment benefits were made last week. This was close to the 259,000 that was expected and an increase from the previous week’s revised total of 248,000 initial filings. The increase is good news because rising claims is a sign of a softening employment sector, but the variance from forecasts wasn’t enough to draw much attention. Especially since this is only a weekly report. Therefore, it has had little influence on today’s mortgage rates.
We also have today’s 7-year Treasury Note auction to watch. Results will be posted at 1:00 PM ET, so any reaction will come during early afternoon trading. A strong demand for the securities could help boost the broader bond market and possibly cause a slight improvement to mortgage rates later today. On the other hand, a particularly weak interest could pressure bonds and mortgage pricing during afternoon hours.
Tomorrow has three economic reports being posted, starting with March’s Personal Income and Outlays data at 8:30 AM ET. It helps us measure consumers’ ability to spend and current spending habits. This information is important to the mortgage market due to the influence that consumer spending-related data has on the financial markets. If a consumer’s income is rising, they have the ability to make additional purchases in the near future, fueling economic growth. This raises inflation concerns and has a negative impact on the bond market and mortgage rates. Current forecasts are calling for a 0.3% increase in the income reading and a 0.2% rise in spending. If we see smaller than expected readings, the bond market should open higher tomorrow morning.
Also early tomorrow morning is the 1st Quarter Employment Cost Index (ECI). This index tracks employer costs for wages and benefits, giving us a measurement of wage-inflation. If it shows a large increase, we may see wage inflation concerns rise as employers will need to pass those increases into the pricing of their products and services. That would cause the bond market to fall and mortgage rates to rise. A smaller than expected increase would be good news for the bond market and mortgage pricing although I doubt this report will affect mortgage rates. Current forecasts are showing a rise of 0.6%.
The week closes with the University of Michigan’s revised Index of Consumer Sentiment for April just before 10:00 AM ET. This report gives us an indication of consumer sentiment and their willingness to spend. Current forecasts are calling for a rise from the preliminary reading of 89.7. This means that surveyed consumers were a little more optimistic about their own financial situations as they were earlier this month. This data is relevant because if consumers feel better about their own financial and employment situations, they are more apt to make a large purchase in the near future, fueling economic growth. I don’t expect this report to have a significant impact on bonds and mortgage pricing unless it shows a noticeable revision.