Thursday’s bond market has opened in positive territory, extending yesterday’s afternoon rally. The stock markets are much calmer than they were yesterday with the Dow up 7 points and the Nasdaq down 23 points. The bond market is currently up 6/32 (2.07%), which should improve this morning’s mortgage rates by approximately .125 of a discount point over yesterday’s morning pricing.
Yesterday’s afternoon events helped boost bond prices and led to many lenders improving rates. The 10-year Treasury Note auction went very well with many benchmarks showing a decent level of investor interest in the securities. That helps us to remain optimistic about today’s 30-year Bond sale. If it also has a strong level of demand, we could see bonds improve again during afternoon trading today. Results will be posted at 1:00 PM ET, so any reaction will come shortly after.
The Federal Reserve posted their Beige Book at 2:00 PM ET today. It did not reveal any significant surprises but indicated modest or moderate economic growth through the country. The afternoon buying in bonds was more a result of the stock sell-off than this report as investors sought safety.
Today’s only economic data was last week’s unemployment figures that showed that 284,000 new claims for unemployment benefits were filed last week. This was higher than the 275,000 that was expected and an increase from the previous week’s 277,000 new claims. That indicates the employment sector softened a little last week, making the data good news for bonds and mortgage rates. Unfortunately, this is only a weekly report and has had minimal influence on today’s rates.
Tomorrow has the remaining four reports set for release that has the potential to affect mortgage rates. The first is December’s Retail Sales data at 8:30 AM ET. This Commerce Department report measures consumer spending by tracking sales at U.S. retail level establishments. Since consumer spending makes up over two-thirds of the U.S. economy, any related data is watched closely. Rising consumer sales fuels expectations for broader economic growth that makes long-term bonds less attractive to investors. Current forecasts are calling for a 0.1% increase December’s sales. A decline in sales would be good news for bonds and mortgage rates because it would hint at weaker than thought economic growth.
The second report of the day is December’s Producer Price Index (PPI) at 8:30 AM ET. The PPI is important to the markets and mortgage rates because it measures inflationary pressures at the producer level of the economy. Analysts are expecting to see a 0.1% decline in the overall reading and a 0.1% increase in the more important core reading that excludes volatile food and energy prices. A larger than expected increase in the core reading could mean higher mortgage rates Friday since strengthening inflation is bad news for the bond market. It erodes the value of a bond’s future fixed interest payments, making them less attractive to investors. Accordingly, they are sold at a discount to offset the drop in value, which drives their yields higher. And since mortgage rates follow bond yields, rising inflation usually translates into higher interest rates for borrowers.
Next up is December’s Industrial Production report with a release time of 9:15 AM ET. This data measures output at U.S. factories, mines and utilities, giving us an indication of manufacturing sector strength or weakness. Current forecasts are calling for a decline in production of 0.2% from November’s level. A weaker reading would be considered good news for bonds and could help lower mortgage rates as it would point towards a manufacturing sector that was softer than many had thought. However, the 8:30 AM reports are much more important to the markets than this data is and will likely have a heavier influence on mortgage rates.
The final report of the week is January’s preliminary reading to the University of Michigan’s Index of Consumer Sentiment. This index measures consumer willingness to spend and can usually have enough of an impact on the financial markets to slightly change mortgage rates. If consumers feel better about their own financial and employment situations, they are more apt to make a large purchase in the near future, fueling economic growth. Good news would be a reading weaker than December’s 92.6 that means consumers felt less confident this month and likely will avoid making a large purchase in the immediate future.