Wednesday’s bond market has opened in negative territory due partly to sizable gains in stocks. The major stock indexes are in rally mode this morning with the Dow up 171 points and the Nasdaq up 47 points. The bond market is currently down 9/32 (2.47%), which should push this morning’s mortgage rates higher by approximately .250 of a discount point over Tuesday’s early pricing.
Today’s only relevant event is the 10-year Treasury Note auction that will be followed by 30-year Bonds tomorrow. Results of both auctions will be posted at 1:00 PM ET each day. If investor demand for the securities was high, we may see bonds rally during afternoon trading. However, weak demand for the securities could lead to selling and an increase to mortgage rates. It is common to see some pressure in bonds right before these sales as investors prepare for them, but as long as the sales are not weak those pre-auction losses are usually recovered once they are completed. If we get a reaction to today’s sale, it will come during early afternoon trading.
Tomorrow has two pieces of economic data set for release with one of them being much more important than the other. The Commerce Department will post May’s Retail Sales data at 8:30 AM ET tomorrow, giving us a key measurement of consumer spending. Spending data is closely watched by bond traders because consumer spending makes up over two-thirds of the U.S. economy. Analysts are expecting to see that retail-level sales rose 1.1% last month. A decline in sales, signaling a slowing economy, would be great news for the bond market but we will settle for just a smaller increase than what forecasts are calling for as it should be enough to lower mortgage rates tomorrow morning. On the other hand, a stronger level of sales will likely equate to more bond selling and another increase in rates.
The second report of the day will also be posted at 8:30 AM ET when last week’s unemployment figures are released. They are expected to show that 278,000 new claims for unemployment benefits were filed last week, up slightly from the previous week’s total of 276,000. Declining initial claims is a sign of employment sector strength, so the larger the increase, the better the news it is for mortgage rates. Although, because this is only a weekly reading, the markets will be more focused on the sales data.