Thursday’s bond market has opened in positive territory again despite mixed economic news. The stock markets are showing relatively minor losses with the Dow down 43 points and the Nasdaq down 33 points. The bond market is currently up 12/32 (1.81%), but due to weakness in trading late yesterday we will likely see little change in this morning’s rates if comparing to Wednesday’s morning pricing.
Yesterday afternoon’s events didn’t appear to directly cause bond selling but we did see some weakness as the afternoon progressed. The 30-year Bond auction was not well received with several benchmarks we use to gauge investor demand pointing towards a lackluster interest. The Fed Beige Book gave us what should be considered slightly favorable news because it did not show major gains in economic growth. Most regions reported economic activity at the same levels of the last update and some indicated low oil prices could have a negative impact on some sectors. The net effect this news had on mortgage rates was fairly minimal. The weakness in bonds was more a result of profit-taking and stabilization in the market than the afternoon news pieces.
We had two economic reports posted early this morning. One gave us good news while the other was technically negative. The bad news wasn’t actually bad for bonds. December’s Producer Price Index (PPI) showed a 0.3% decline in the overall reading and a 0.3% increase in the core data that excludes more volatile food and energy prices. The overall reading was expected to fall 0.4% and the core reading was supposed to rise only 0.1%. Those readings indicate that inflationary pressures at the producer level of the economy were a little stronger than many had thought. Since bonds are sensitive to rising inflation, we should consider the data negative for rates even though it has not had too much of an impact on this morning’s pricing.
The second release of the morning was last week’s unemployment numbers. It showed that 316,000 new claims for unemployment benefits were filed last week, up from the previous week’s revised total of 297,000. That is actually good news for bonds and mortgage rates because rising claims is a sign of a softening employment sector. Unfortunately, this is only a weekly snapshot of the sector, so its influence on this morning’s mortgage rates has been minimal.
Tomorrow closes the week with three economic reports that have the potential to affect mortgage rates. The first is December’s Consumer Price Index (CPI) at 8:30 AM. This is one of the more important monthly reports for the bond market each month since it measures inflationary pressures at the consumer level of the economy. As with today’s PPI, there are two readings in the release. The overall index is expected to increase 0.4% while the core data rose 0.1%. Weaker than expected readings would be favorable news and should lead to bond strength and lower mortgage rates Friday morning.
December’s Industrial Production report has a release time of 9:15 AM ET Friday. 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 0.1% 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.
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 93.6 that means consumers felt less confident this month and likely will avoid making a large purchase in the immediate future. Analysts are expecting to see 94.1.