Thursday’s bond market has opened in negative territory following the release of stronger than expected economic data. The stock markets are rebounding from yesterday’s sell-off with strong gains during early trading. The Dow is currently up 204 points while the Nasdaq has gained 69 points. The bond market is currently down 8/32 (2.20%), but because of strength late yesterday we will likely see little change in this morning’s mortgage rates compared to yesterday’s morning pricing.
We saw strength in bonds late yesterday after news of a decent 10-year Treasury Note auction. Several of the benchmarks we use for determining investor interest in these sales showed a fairly strong level of demand. That helped boost interest in the broader bond market and led to many lenders improving rates slightly during afternoon hours yesterday. The 10-year sale helps us remain optimistic about today’s 30-year Bond auction. Results of today’s sale will be posted at 1:00 PM ET, so any reaction to it should come during early afternoon hours.
There were two pieces of economic data posted early this morning. November’s Retail Sales report was the more important of the two and gave us the results that are pushing bond yields higher today. The Commerce Department announced that retail-level sales rose 0.7% last month, exceeding forecasts of a 0.4% rise. Even a secondary reading that excludes pricey and more volatile auto sales showed an increase that was more than twice expectations. These readings indicate that consumers spent more last month than many had thought. Since consumer spending fuels economic growth, this report was negative for mortgage rates.
Also posted this morning was the weekly unemployment update that revealed 294,000 new claims for unemployment benefits were filed last week. That was close to expectations and a decline from the previous week’s 297,000 new claims. The decline hints at a strengthening employment sector, making the data slightly negative for bonds and mortgage rates. However, the Retail Sales data and stock gains are having much more of an influence on today’s mortgage pricing.
Tomorrow closes the week with two more pieces of relevant economic data. The first will be November’s Producer Price Index (PPI) at 8:30 AM ET tomorrow morning. This index helps us measure inflationary pressures at the producer level of the economy. There are two portions of the index that are used- the overall reading and the core data reading. The core data is the more important of the two because it excludes more volatile food and energy prices, giving a more stable reading for analysts to consider. If tomorrow’s release reveals stronger than expected readings, indicating that inflationary pressures are rising, the bond market will probably react negatively and drive mortgage rates higher. If we see in-line or weaker than expected numbers, the bond market should respond well and mortgage rates could fall. Current forecasts are showing a 0.1% decline in the overall index and a 0.1% rise in the core data.
The final report of the week is the release of December’s preliminary reading to the University of Michigan’s Index of Consumer Sentiment just before 10:00 AM ET tomorrow morning. This index measures consumer willingness to spend and can usually have enough of an impact on the financial markets to change mortgage rates slightly if it shows a sizable miss from forecasts. Consumer sentiment or confidence is tracked because the more comfortable consumers are about their own financial situations, the more likely they are to make a large purchase in the near future. Since consumer spending makes up such a large part of our economy, any related data is watched closely. Tomorrow’s release is expected to show a reading of 89.5, which would be a small rise from last month’s final reading of 88.8. A large decline in confidence would be considered good news for the bond market and mortgage rates.