Thursday’s bond market has opened in positive territory again despite unfavorable economic news. The stock markets are showing early weakness with the Dow down 53 points and the Nasdaq down 11 points. The bond market is currently up 8/32 (2.33%), which should improve this morning’s mortgage rates by approximately .125 of a discount point.
The first revision to the 2nd Quarter Gross Domestic Product (GDP) was posted at 8:30 AM ET this morning, revealing a 4.2% annual growth rate during the April through June months. This was an upward revision from the initial estimate of 4.0% and stronger than what analysts were expecting. That means that the economy was a little stronger during the quarter than what many had thought, making the data bad news for the bond and mortgage markets.
Also released early this morning was last week’s unemployment figures. They showed that 298,000 new claims for unemployment benefits were filed last week, down slightly from the previous week’s revised total of 299,000. Analysts were expecting to see a small increase in initial claims that would have indicated the employment sector weakened slightly last week. The nearly unchanged number that remained below 300,000, hints that there was little change in the sector. Therefore, we should consider the data neutral to slightly negative for bonds and mortgage rates.
This week’s second relevant Treasury auction is taking place today also. 7-year Treasury Notes are being sold today with results being posted at 1:00 PM ET. Yesterday’s 5-year Note sale didn’t go badly, but we can’t say it was strong either. Several of the benchmarks we use to gauge investor interest in the securities pointed towards an average level of demand. If that is the same in today’s sale, we likely will see little reaction during afternoon trading. On the other hand, if today’s auction was met with a strong demand, we could see bond prices rise and mortgage rates revise slower during mid-afternoon hours.
July’s Personal Income and Outlays report will be posted at 8:30 AM ET tomorrow. This data will give us a measurement 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 0.3% in income and a 0.1% 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. It is expected to show a reading of 80.0, up from August’s preliminary reading of 79.2. 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 shoppers.