Thursday’s bond market has opened in negative territory yet again following some stronger than expected economic news and reaction to overseas financial issues. Stocks are showing sizable gains with the Dow up 128 points and the Nasdaq up 26 points. The bond market is currently down 19/32 (1.81%), but due to a late surge yesterday that caused many lenders to improve rates during afternoon trading, we should little in this morning’s rates if comparing to Wednesday’s morning pricing. This morning’s losses more or less offset yesterday’s late gains.
The bond market rallied late yesterday on financial news regarding Greece and the recent post-election posturing there being made in an attempt to modify their bailout terms. The European Central Bank lifted an exemption that had been in place for Greek debt that many believe was in reaction to the new controlling political party’s efforts to ease the restrictions that are currently in place as condition of their financial bailout. The global markets had a knee-jerk reaction during afternoon trading yesterday that benefited mortgage shoppers. However, as the news and events were digested overnight in more detail, the bond market is giving back a good part of yesterday’s rally.
Neither of this morning’s two pieces of economic data are considered to be highly important, but both gave us results that are not favorable for mortgage rates. The first was 4th Quarter Employee Productivity and Costs data that showed a 1.8% drop in worker productivity, falling well short of the 0.2% increase that was expected. That makes the data negative for bonds and mortgage rates because high levels of worker output allows the economy to grow without fear of rapid inflation. Also worth noting was a sizable increase in a secondary reading that tracks costs for wages and benefits, which is a wage-inflation flag.
Last week’s unemployment numbers were also posted at 8:30 AM ET. They revealed that 278,000 new claims for unemployment benefits were filed last week, up from the previous week’s revised 267,000 initial claims. That is a sign that the employment sector softened last week, but because analysts were expecting to see 290,000 new filings, the sector appears stronger than thought. Therefore, we should consider this news to be slightly negative for bonds and mortgages rates.
Tomorrow brings us the release of some major data that is high likely to be a market mover. The Labor Department will release the almighty Employment report for January at 8:30 AM ET tomorrow. Some of the important portions of the report will give us the unemployment rate, number of new jobs added or lost and the average hourly earnings reading. The best combination for the bond market and mortgage rates would be an increase in the unemployment rate, a much smaller increase in payrolls than expected and little or no increase in earnings. Current forecasts are calling for no change in the unemployment rate of 5.6% and approximately 235,000 new jobs added to the economy. Stronger than expected readings will likely fuel a stock market rally and selling in bonds that would cause a sizable upward revision to mortgage rates. On the other hand, disappointing numbers would raise concerns about the strength of economy and would likely lead to a sizable improvement in mortgage pricing.