Thursday’s bond market has opened in negative territory, extending yesterday’s afternoon weakness. The stock markets are showing minor losses with the Dow down 30 points and the Nasdaq down 3 points. The bond market is currently down 7/32 (2.16%), which with yesterday’s late selling should push this morning’s mortgage rates higher by approximately .250 of a discount point if comparing to Wednesday’s morning rates.
Yesterday’s afternoon weakness can partly be attributed to a weak 10-year Treasury Note auction. Several of the indicators we use to measure investor demand in the securities showed a lackluster interest. That led to some pressure in the broader bond market after results were posted at 1:00 PM ET. The weak interest yesterday doesn’t give us too much to be optimistic about in today’s 30-year Bond sale. If we get similar results, we could very well see bond prices drop and mortgage rates rise slightly shortly after 1:00 PM ET.
The Commerce Department announced early this morning that July’s Retail Sales rose 0.6%, slightly exceeding forecasts of a 0.5% increase. However, a secondary reading that excludes more volatile and expensive auto sales showed a 0.4% increase when 0.5% was forecasted for it also. The two readings offset each other for the most part, making the results neutral for the bond and mortgage markets.
Also posted early this morning was last week’s unemployment figures. They showed that 274,000 new claims for unemployment benefits were filed last week, up from the previous week’s revised 269,000 initial claims. This was a little higher than expected, so we can consider this data slightly favorable for bonds and mortgage pricing. Unfortunately, this is only a weekly report and often does little to influence mortgage rates.
Tomorrow has three reports being posted. The first will be July’s Producer Price Index (PPI) from the Labor Department at 8:30 AM ET, giving us an important measurement of inflationary pressures at the producer level of the economy. There are two readings that analysts follow in this release. They are the overall index and the core data reading. The core data is the more important of the two since it excludes more volatile food and energy prices. Analysts are predicting a 0.1% increase in the overall index and a rise of 0.1% in the core data. Stronger than expected readings may raise inflation concerns in the bond market and help guarantee a Fed rate hike sooner than later. That would be bad news for bonds and mortgage rates because inflation is the number one nemesis of the bond market as it erodes the value of a bond’s future fixed interest payments. As inflation becomes more of a concern in the markets, bonds become less appealing to investors, leading to falling prices, rising yields and higher mortgage rates.
July’s Industrial Production report is scheduled to be posted at 9:15 AM ET tomorrow. This report measures manufacturing sector strength by tracking output at U.S. factories, mines and utilities. It is expected to show a 0.3% increase from June’s level. A decline would be considered favorable news for bonds and mortgage rates because it would indicate manufacturing sector weakness and broader economic growth would be more difficult if manufacturing activity is slipping.
The last release of the week will be posted by the University of Michigan just before 10:00 AM ET tomorrow. Their Index of Consumer Sentiment will give us an indication of consumer confidence, which projects consumer willingness to spend. If a consumer’s confidence in their own financial situation is rising, they are more apt to make large purchases in the near future. But, if they are growing more concerned about their job security or finances, they probably will delay making that large purchase. This influences future consumer spending data and therefore, impacts the financial markets. It is expected to show a reading of 93.7 that would mean confidence was stronger than July’s level of 93.1. Good news for mortgage shoppers would be a sizable decline in the index.