Tuesday’s bond market has opened in positive territory with stocks in negative ground again. The major stock indexes bounced and closed well off of their lows of the day yesterday, giving some hope in the market that today would be a positive day. At the moment that does not look like it will be the case as the Dow is currently down 108 points while the Nasdaq has lost another 27 points. The bond market is currently up 8/32 (1.72%), which may improve this morning’s mortgage rates slightly if comparing to yesterday’s early pricing.
Today has no relevant economic data set for release and neither does tomorrow. If we see a change in rates intraday today, it will probably be a result of stock movement. If the major stock indexes extend this morning’s losses, bonds could improve enough to cause a downward rate revision. On the other hand, if stocks rebound again, bonds could see pressure, leading to an upward revision to mortgage pricing later today.
Tomorrow does have two events we will be watching closely though. Fed Chair Janet Yellen will deliver the Fed’s semi-annual testimony on the status of the economy late tomorrow and Thursday mornings. She will be speaking to the House Financial Services Committee tomorrow and the Senate Banking Committee Thursday. Market participants will follow her words very closely. The Fed is required to deliver this testimony twice a year, which is considered to be of extreme importance to the financial markets. We almost always see the markets move as a result of what is said during this testimony. Look for her to address our employment situation, inflation, stock volatility and global financial issues and their impact on the economy. Her testimony begins at 10:00 AM ET with a prepared statement which is then followed by Q & A with committee members. Her prepared words are expected to be released prior to her appearance, so we could see a reaction early tomorrow morning. I am expecting to see the markets fluctuate, likely affecting mortgage rates also. The first day of testimony usually causes the most volatility because the prepared statement made by the Chairman on the second day often differs little from that of the first day.
Also tomorrow is the first of two important Treasury auctions that can have an impact on mortgage rates. 10-year Notes will be sold tomorrow and 30-year Bonds will be auctioned Thursday. The 10-year sale is the more important of the two as it will give us an indication for demand of mortgage-related securities. If the sales are met with a strong demand from investors, we should see the bond market move higher during afternoon trading those days. But a lackluster interest from buyers, particularly international investors, would indicate a waning appetite for longer-term U.S. securities and lead to broader bond selling. The selling in bonds would result in upward afternoon revisions to mortgage rates. Results are posted at 1:00 PM Et auction days, so any reaction will come during early afternoon trading.