Wednesday’s bond market opened in positive territory, extending strength that came late yesterday. Stocks are helping the cause by showing losses of 205 points in the Dow and 58 points in the Nasdaq. The bond market is currently up 14/32 (1.66%), which should improve this morning’s mortgage rates by approximately .125 – .250 of a discount point if comparing to Tuesday’s early pricing.
The Commerce Department announced late this morning that sales of newly constructed homes fell 9.2% last month, falling well short of expectations. This data indicates that the new home portion of the housing sector was weaker than many had thought, making the data good news for bonds and mortgage rates. However, this report is not considered to be highly important to the bond market and had a minor impact on this morning’s rate improvement. Bonds appeared to be on their way to a positive morning before this report was posted.
We also have the first of this week’s two Treasury auctions today that may influence bond trading enough to affect mortgage rates. 5-year Notes are being sold today while 7-year Notes go tomorrow. 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 afternoon 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. Results will be posted at 1:00 PM ET, so any reaction will come during early afternoon trading.
Besides the 7-year Note auction tomorrow, there are also two economic reports scheduled for release. One is much more important to the markets than the other. The important monthly report is January’s Durable Goods Orders data at 8:30 AM ET. It will give us an important measurement of manufacturing sector strength by tracking orders at U.S. factories for items expected to last three or more years. Products such as electronics, refrigerators, airplanes and autos are examples of these big-ticket items. Analysts are expecting to see a 2.0% increase in new orders, hinting at manufacturing sector growth. This data is known to be volatile from month to month, so don’t be surprised if a modest variance from forecasts does not have much of an influence on tomorrow’s mortgage rates.
The less important one is the weekly unemployment update from the Labor Department. They are expected to say that 270,000 new claims for unemployment benefits were filed last week, up from the previous week’s 262,000. Ideally, we want to see a large increase in initial claims because rising claims indicate a weakening employment sector. This report will also be posted at 8:30 AM ET, but it usually takes a wide variance from expectations for it to have an impact on mortgage rates and the Durable Goods data carries much more significance than this report.