Thursday’s bond market has opened fairly flat despite much stronger than expected economic news and another round of early stock gains. The major stock indexes are adding to yesterday’s rally that pushed the Dow up 619 points. So far this morning, the Dow has gained 161 points while the Nasdaq is up 59 points. The bond market is currently unchanged from yesterday’s close (2.18%), but we should still see an increase of approximately .125 of a discount point in this morning’s mortgage rates due to weakness late yesterday.
Yesterday’s 5-year Treasury Note auction did not go too well. The benchmarks we use to gauge investor demand showed average to below average interest from investors. That helped push bond prices lower and yields higher during afternoon trading, causing some lenders to make upward revisions to mortgage rates. The lackluster reception prevents us from getting too optimistic about today’s 7-year Note sale. Results will be posted at 1:00 PM, so any reaction will come during early afternoon trading again. A strong interest in the securities generally has a positive impact on the broader bond market and leads to slightly lower mortgage pricing.
The big news of the morning was the first revision to the 2nd Quarter Gross Domestic Product (GDP) that showed the economy actually grew at a pretty rapid 3.7% annual pace. That was a sizable increase from the previous estimate of 2.3% and stronger than forecasts of 3.1%. This means that the economy was much stronger during the April, May and June months than many had thought. Because stocks are more appealing to investors during better economic times and bonds tend to thrive during weaker, the news is clearly negative for the bond market and mortgage rates.
Last week’s unemployment figures were also be posted at 8:30 AM ET, revealing 271,000 new claims for unemployment benefits. This was lower than the 275,000 that was expected and a decline from the previous week’s 277,000. That makes the data bad news for bonds and mortgage rates, but this is a minor report and the variance was not significant. Therefore, it has had a limited impact on today’s trading.
Tomorrow has two pieces of economic data set to be posted. July’s Personal Income and Outlays report is the first at 8:30 AM ET. This data will give us a measure of consumer ability to spend and current spending habits. Rising income means consumers have more money to spend. It is expected to show an increase of 0.4% in income and a 0.4% increase in spending. Since consumer spending makes up over two-thirds of the U.S. economy, weaker than expected numbers would be considered good news for the bond market and mortgage pricing.
The second report of the morning will be the University of Michigan’s revised Index of Consumer Sentiment for August. This sentiment index helps us track consumer willingness to spend similarly to Tuesday’s CCI. It is expected to show little change from August’s preliminary reading of 92.9. If it revises lower, consumers were less confident about their personal financial situations than previously thought. This would be good news for the bond market and mortgage rates because waning confidence usually means that consumers are less likely to make large purchases in the near future. The lower the reading the better the news it is for mortgage rates and shoppers.