Wednesday’s bond market has opened flat with no surprises in this morning’s events to cause much movement. The stock markets are also calm with the Dow down 2 points and the Nasdaq up 1 point. The bond market is currently almost unchanged from yesterday’s close (1.97%), but due to afternoon strength in trading yesterday, we should still see an improvement of approximately .250 of a discount point over Tuesday’s morning pricing.
January’s New Home Sales report was posted at 10:00 AM ET this morning, revealing little change in sales of newly constructed homes last month. Analysts were expecting to see a decline in sales, so we can technically consider the data bad news for bonds and mortgage rates. However, the data actually has had little influence on this morning’s mortgage rates.
Day two of Fed Chair Janet Yellen’s congressional testimony has failed to yield any surprises. We have seen little reaction in the markets to this morning’s statement and Q&A from the House Financial Services Committee. I suspect this will be a non-factor in this today’s trading and mortgage pricing.
We also have the first of this week’s two relatively important Treasury auctions taking place today. 5-year Treasury Notes are being sold today and 7-year Notes will 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 selling in the bond market that leads to upward revisions in 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 hours.
In addition to the 7-year Note auction, tomorrow has three pieces of economic data scheduled for release, all of which will be posted at 8:30 AM ET. January’s Durable Goods Orders data 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 1.8% 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 to see a big headline number in this report.
The second report of the day is January’s Consumer Price Index (CPI). It measures inflationary pressures at the consumer level of the economy. A significant surprise in this data can have a noticeable impact on the financial markets, especially long-term securities such as mortgage-related bonds. Inflation isn’t exactly a concern currently, but there are many that feel that rapid inflation down the road is a threat, so analysts still track the readings closely. The report is expected to show a 0.6% decline in the overall index and a 0.1% rise in the more important core data that excludes food and energy costs. If we see weaker than expected readings, bond prices should rise and mortgage rates will likely fall tomorrow morning as long as long as the Durable Goods Orders data doesn’t offset.
Last week’s unemployment numbers will also be released early tomorrow morning. They are expected to show that 290,000 new claims for unemployment benefits were filed last week, up from the previous week’s 283,000 initial claims. Rising claims indicate employment sector weakness, so the higher the number the better the news it is for bonds and mortgage rates. Although it is worth noting that because this is only a weekly snapshot and comes with two important reports, it likely will not cause much movement in mortgage pricing unless it shows a significant variance from forecasts.