Thursday’s bond market has opened in positive territory despite stronger than expected economic data. The stock markets are also showing gains with the Dow up 100 points and the Nasdaq up 22 points. The bond market is currently up 11/32 (2.44%), which should improve this morning’s mortgage rates by approximately .125 of a discount point.
We saw some volatility yesterday afternoon with bonds improving when results of the 10-year Treasury Note auction were released, but that was short lived as those gains were lost and then some before the market closed. The initial improvement was a result of a pretty strong auction that brought decent interest from investors. That helps us to remain optimistic about today’s 30-year Bond sale. If today’s auction is just as well received as yesterday’s was, we could see an afternoon improvement in mortgage rates.
The Commerce Department released May’s Retail Sales report at 8:30 AM ET this morning, announcing a 1.2% increase in consumer level sales. This was slightly stronger than the 1.1% increase that was expected. Also worth noting was a 1.0% increase in a secondary reading that excludes more volatile auto transactions. Analysts were expecting to see only a 0.7% rise in this reading. The stronger than forecasted increases make the data bad news for bonds and mortgage rates because they point towards better economic growth that make bonds less appealing to investors and raises the possibility of a Fed rate increase in the immediate future.
Also released this morning was last week’s unemployment figures. They showed that 279,000 new claims for unemployment benefits were filed last week. This was a small increase from the previous week’s revised total of 277,000 initial claims. The data indicates the employment sector weakened slightly last week, but because this is only a weekly report and the variance was not significant, it actually has not had much of an influence on today’s rates.
Tomorrow has two pieces of data that may influence mortgage rates. The first is one of the two key measurements of inflation that we get each month. May’s Producer Price Index (PPI) will be released at 8:30 AM ET, giving us a measurement of inflationary pressures at the producer level of the economy. There are two readings of this index, the overall and the core data. The core data is considered to be the more important one because it excludes more volatile food and energy prices. A large increase could raise concerns about inflation rising, making a Fed rate increase more likely sooner than later. This would not be good news for bond prices or mortgage rates since inflation erodes the value of a bond’s future fixed interest payments. Rising inflation causes investors to sell bonds, driving bond prices lower, pushing their yields upward and bringing mortgage rates higher. Analysts are expecting to see increases of 0.4% in the overall reading and 0.1% in the core data. Good news for mortgage shoppers would be declines.
June’s preliminary reading to the University of Michigan’s Index of Consumer Sentiment will close out the week’s calendar just before 10:00 AM ET tomorrow. This index measures consumer willingness to spend and usually has a moderate impact on the financial markets. It is expected to show a reading of 91.4, which would be an increase from May’s 90.7. A smaller than expected reading would be considered good news for bonds because it would mean that surveyed consumers were less optimistic about their own financial situations than thought. That often means they are less likely to make large purchases in the near future, but since this report is only moderately important it likely will not influence mortgage rates considerably unless it shows a significant variance from forecasts.