Wednesday’s bond market has opened in negative territory, extending yesterday’s afternoon weakness despite some extremely favorable economic news. The stock markets are reacting negatively to the bond-favorable economic data with the Dow down 75 points and the Nasdaq down 19 points. The bond market is currently down 11/32 (2.04%), which with yesterday’s selling should push this morning’s mortgage rates higher by approximately .125 – .250 of a discount point.
We saw bonds slide late yesterday as investors positioned themselves for today’s events. Yesterday’s 5-year Treasury Note auction wasn’t the cause. The auction actually went well with several indicators we use to gauge investor demand showing a strong level of interest in the securities. That helps us remain optimistic about today’s 7-year Note auction, although there are more important afternoon events scheduled today. Still, a strong demand in the sale is good news for bonds and mortgage rates, even if we likely will see little reaction to the results.
This morning did have an extremely important economic report released. The preliminary version of the 1st Quarter Gross Domestic Product (GDP) reading was posted at 8:30 AM ET. It showed that the economy grew at an annual rate of 0.2% that was well short of forecasts. Analysts were expecting to see a 1.0% annual rate, meaning that economy was not nearly as strong as many had predicted during the first three months of the year. That is very good news for bonds and mortgage rates. However, it is believed that bad weather and other unexpected factors skewed the reading lower. In addition, it appears traders are more focused on this afternoon’s events than this morning’s data, preventing a favorable reaction to the data.
We also the FOMC meeting adjournment to deal with at 2:00 PM ET this 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.
We will update this report shortly after the markets have had an opportunity to react to the statement. There is some relevant economic data set for release tomorrow, but it will be addressed in this afternoon’s update.