Tuesday’s bond market has opened in negative territory again, extending yesterday’s sell-off. The stock markets are showing moderate gains with the Dow up 67 points and the Nasdaq up 2 points. The bond market is currently down 11/32 (2.41%), which will likely push this morning’s mortgage rates higher by approximately .375 of a discount point if comparing to Monday’s morning pricing. Bonds lost more ground yesterday afternoon, causing most lenders to revise rates upward late yesterday. Just how much of an increase you will see this morning depends on how much of a revision your lender made yesterday afternoon.
The Commerce Department gave us May’s Durable Goods Orders early this morning. They showed that new orders for big-ticket items fell 1.8% last month. This was a larger decline than the 0.5% that expected, indicating manufacturing sector weakness. However, this particular report is known for its volatility from month to month, so the variance isn’t drawing as much attention as it would have in many other reports. In fact, a secondary reading that excludes more volatile and pricey transportation/airplane orders fell just shy of forecasts. Still, we can consider this news favorable for bonds and mortgage rates. Unfortunately though, it wasn’t nearly enough to offset the current overall negative tone in the bond market.
May’s New Home Sales figures were posted at 10:00 AM ET today, revealing a 2.2% increase in sales of newly constructed homes. Analysts were expecting to see a slightly smaller increase, meaning the new home portion of the housing sector was also stronger than many had thought. That follows yesterday’s Existing Home Sales report that also exceeded expectations. This is a relatively minor report and has had little influence on this morning’s bond trading and mortgage pricing.
There is only one report worth addressing tomorrow. That would be the final reading to the 1st Quarter Gross Domestic Product (GDP) at 8:30 AM ET. The GDP is the sum of all products and services produced in the U.S. and is considered to be the best measurement of economic growth or contraction. However, this particular data is quite aged now (covers January through March) and will likely have little impact on the bond market or mortgage pricing unless it varies greatly from previous readings. Market participants are looking more towards next month’s release of the current quarter’s initial GDP reading. Last month’s first revision showed a 0.7% annual rate of decline in the GDP. That was a larger contraction than many were expecting to see. Tomorrow’s update is expected to show a 0.2% decline, meaning the economy did contract during the quarter but at a slower pace than previously thought. An increase in the GDP would be considered negative for rates as it means stronger economic activity.
Also tomorrow is the first of this week’s two Treasury auctions that we will be watching. These sales may influence broader bond trading enough to affect mortgage rates if they show strong or weak investor demand. There are auctions several days this week but the two most likely to affect rates are tomorrow’s 5-year Note sale and Thursday’s 7-year Note auction. If they are met with a strong demand, we could see bond prices rise during afternoon trading. This could lead to afternoon improvements to mortgage rates also. But, if the sales draw a lackluster interest from investors, mortgage rates may move higher during afternoon trading these days.