Wednesday’s bond market has opened in negative territory following stronger than expected economic news. The major stock indexes aren’t the cause of the bond weakness because they are showing noticeable losses themselves. The Dow is currently down 109 points while the Nasdaq has lost 50 points. The bond market is currently down 7/32 (2.02%), but we will likely see little change in this morning’s mortgage rates due to strength late yesterday.
December’s New Home Sales report was posted at 10:00 AM ET this morning, revealing a surprising 10.8% rise in sales of newly constructed homes. This was a larger increase than what was expected, indicating strength in the new home portion of the housing sector. That makes the data bad news for bonds and mortgage rates. However, I believe that this morning’s softness in bonds is more a result of anxiety over this afternoon’s events then it is this data.
There are two afternoon events taking place today. The first is the relatively important 5-year Treasury Note auction. The Fed will auction 5-year Notes today and 7-year Notes tomorrow. If these sales are met with a strong demand from investors, the broader bond market may improve during afternoon hours. If they draw a lackluster interest, they could lead to bond selling and higher mortgage rates during early afternoon trading.
Next up is this year’s first FOMC meeting that will adjourn at 2:00 PM ET. There was a decent chance of this meeting yielding another quarter point increase to key short-term interest rates before the recent sell-off in stocks and oil costs. But now I believe the significant selling in stocks recently may alter the Fed’s monetary policy plans, at least temporarily. A rate hike is still possible though, so we need to be prepared in case it does happen. Afternoon volatility in the markets today is a strong possibility following the post-meeting statement release. Look for an update to this report shortly after the markets have an opportunity to react to the statement.