Thursday’s bond market has opened in negative territory following unfavorable employment-related news. The stock markets are also posting sizable losses with the Dow down 133 points and the Nasdaq down 38 points. The bond market is currently down 11/32 (1.92%), which with weakness late yesterday should push this morning’s mortgage rates higher by approximately .250 of a discount point if comparing to Wednesday’s early pricing.
We saw bonds weaken yesterday afternoon, partly a result of a lackluster 10-year Treasury Note auction. Bonds had already moved a little lower but extended that move once results of the sale were posted. Several of the indicators we use to gauge investor demand in these securities showed below average interest. That leaves us little to be optimistic about in today’s 30-year Bond auction. Results of it will be released at 1:00 PM ET, so any reaction will come shortly after. If this was another weak sale, we could see bonds move even lower, causing yields and mortgage rates to revise higher before the end of the day.
This week’s only relevant economic data was last week’s unemployment numbers at 8:30 AM ET this morning. They revealed that 259,000 new claims for unemployment benefits were filed last week, down a decent amount from the 278,000 initial filings of the previous week. This indicates that the employment sector strengthened last week, making the data bad news for bonds and mortgage rates. There was a pretty wide variance from forecasts, but this is only a weekly snapshot and is not the cause of this morning’s bond sell-off.
News from the European Central Bank (ECB) appears to also be influencing the markets today. The ECB announced several moves intended to boost economic activity, some of which caught many market analysts by surprise. That signals that the ECB is concerned about economic growth and felt it needed to act strongly. Usually, those moves are considered good news for the bond market here but they are having a negative impact on today’s trading. The move has pushed the benchmark 10-year Treasury Note yield within striking range of the important threshold of 2.00%. If we break above that level, there is a lot of room for it to move higher in large increments. Since mortgage rates tend to follow bond yields, this would be bad news for mortgage shoppers. Therefore, please proceed cautiously if still floating an interest rate and closing in the near future.
There is nothing of importance scheduled for tomorrow, so look for this afternoon’s momentum to help start the day’s trading and for stock movement to possibly drive bonds throughout the day. A large improvement in bonds that pushes the 10-year yield below 1.90% would be extremely good news. On the other hand, moving higher or remaining at or above its current level raises concern about which direction we may be heading.