Tuesday’s bond market initially opened in negative territory but has since moved into positive ground following this morning’s economic data and Fed event. The stock markets are reacting favorably also with the Dow up 65 points and the Nasdaq up 1 point. The bond market is currently up 5/32 (2.04%), which should improve this morning’s mortgage rates by approximately .125 of a discount point.
Today’s big news was day one of Fed Chair Yellen’s semi-annual testimony on the status of the economy and monetary policy to Congress. She is speaking in front of the Senate Banking Committee today and will return for the House Financial Services committee tomorrow. Her most important comments addressed when the Fed will start raising key short-term interest rates and what will transpire before then. It appears the Fed has moved away from a specific time frame to make the first move and now will be deciding on a “meeting by meeting basis” that differs a little from previous comments. They also will remove the word “patient” from their post-FOMC meeting statement verbiage that had been watched closely by analysts and market participants when referencing when a potential move may come.
Overall, her testimony and the Q&A portion of the proceedings so far have not given us any earth-shattering news or surprises. The markets have had a reaction that is favorable for bonds and mortgage rates. However, it is somewhat muted compared to the potential an event like this can cause. Look for further movement as the proceeding progresses although I would be surprised to see a significant move either way in the major stock indexes or bond prices and mortgage rates.
February’s Consumer Confidence Index (CCI) was this morning’s sole piece of economic data. The Conference Board announced a reading of 96.4 that fell short of expectations and was a large decline from January’s revised 103.8 reading. This means surveyed consumers were less optimistic about their own financial and employment situations than last month. That indicates consumers are less likely to make a large purchase in the near future, making the data good news for the bond and mortgage markets.
Besides day two of Janet Yellen’s testimony, we also have a couple of other items that are worthy of our attention tomorrow. January’s New Home Sales report will be posted at 10:00 AM ET tomorrow, giving us a measure of housing sector strength and mortgage credit demand. However, it usually does not have a significant impact on bond trading or mortgage rates unless it shows a significant surprise. Tomorrow’s release is expected to show a decline in sales of newly constructed homes, hinting at weakness in the new home portion of the housing sector. The larger the decline, the better the news it is for bonds and mortgage rates.
Also tomorrow is the first of this week’s two relatively important Treasury auctions that may influence bond trading enough to affect mortgage rates. There will be an auction of 5-year Notes tomorrow and 7-year Notes on Thursday. Neither of these sales will directly impact mortgage pricing, but they can influence general bond market sentiment. If the sales go poorly, we could see broader selling in the bond market that leads to upward revisions to mortgage rates. However, sales with higher levels of investor demand usually make bonds more attractive to investors and brings additional funds into the bond market. The buying of bonds that follows translates into lower mortgage rates.