Thursday’s bond market has opened well in positive territory as overnight gains extend into this morning’s trading. Stocks are continuing their slide with the Dow down 222 points and the Nasdaq down 39 points. The bond market is currently up 22/32 (1.61%), which with strength late yesterday should improve this morning’s mortgage rates by approximately .375 of a discount point if comparing to Wednesday’s morning pricing.
Yesterday’s relatively important 10-year Treasury auction went pretty well. Bonds improved during afternoon trading, but I don’t believe this sale played too much of a role in that move. It does however, help us to be optimistic about today’s 30-year Bond auction. If demand for these securities is strong, we could see bonds extend this morning’s gains later today. Results will be posted at 1:00 PM ET, so any reaction will come during early afternoon trading.
So what is fueling this unexpected bond rally? It appears to be concerns over the global economy with oil prices as a strong base. There is good news in this and also some caution. The caution is the fact that whenever we see a significant and rapid improvement in bond yields and mortgage rates like the current, they often unwind or reverse extremely fast when the cause of the rally eases. The good news is that while a partial reversal or profit-taking move is still expected, the reason for this particular bond rally may not go away anytime soon. In other words, while we should be expecting a bounce of some type in bond yields (and rates), we still should see the 10-year Treasury Note yield remain below 2.00% for the immediate future. Since mortgage rates tend to track bond yields, this should bode well for mortgage shoppers. I remain cautious towards floating a rate at the present moment though simply because profit-taking should be kicking in soon that could cause a bump in rates. Remaining cautious until the bond market stabilizes would be prudent.
Today’s only economic data was last week’s unemployment figures at 8:30 AM ET. They showed that 269,000 new claims for unemployment benefits were filed last week, down from the previous week’s total of 285,000 initial claims. Declining claims is actually a bad sign for bonds and mortgage rates because it points towards a strengthening employment sector. Fortunately though, this is just a weekly report that has not had much of an impact on today’s trading.
Day two of the Fed’s congressional testimony hasn’t brought any surprises that are worth mentioning. Chair Yellen is speaking to the senate Banking Committee today after yesterday’s House Financial Services committee appearance. If we get a surprise comment it will come during the Q&A portion of the proceeding, but I don’t believe this event will affect mortgage rates any further.
Both of this week’s monthly economic reports will be released tomorrow morning. The first is one of the more important ones we get each month. The Commerce Department will post January’s Retail Sales data at 8:30 AM ET. This report is very important to the financial markets because it measures consumer spending. Since consumer spending makes up over two-thirds of the U.S. economy, any related data is watched quite closely. If Friday’s report reveals weaker than expected retail-level sales, the bond market should thrive and mortgage rates will fall since it would be a sign that the economy is not as strong as many had thought. However, a stronger reading than the 0.2% increase that is expected could lead to higher mortgage rates.
February’s preliminary reading to the University of Michigan’s Index of Consumer Sentiment will be released just before 10:00 AM tomorrow. This index measures consumer willingness to spend and usually has a moderate impact on the financial markets. If it shows an increase in consumer confidence, the stock markets may move higher and bond prices could fall. It is currently expected to come in at 92.7, down from January’s final reading of 93.3. That would indicate consumers were a little less optimistic about their own financial situations than last month and are less likely to make large a purchase in the near future. Since consumer spending makes up over two-thirds of the U.S. economy, this would be considered slightly positive news for bonds and mortgage pricing. Ideally, we would prefer to see a large decline in confidence.