Thursday’s bond market has opened in positive territory following much weaker than expected economic news. The stock markets are also showing gains despite that data, with the Dow up 158 points and the Nasdaq up 18 points. The bond market is currently up 8/32 (2.08%), which with yesterday’s afternoon strength should improve this morning’s mortgage rates by approximately .250 of a discount point if comparing to Wednesday’s morning pricing.
Nearly half of this morning’s improvement is a result of a pretty strong 10-year Treasury Note auction that caused bonds to improve yesterday afternoon. Several of the indicators we use to gauge investor demand in the sale indicated a decent level of interest. That allowed bonds to move higher shortly after results of the auction were posted at 1:00 PM ET. The interest in yesterday’s auction also allows us to remain optimistic about today’s 30-year Bond sale. If there is a similar or stronger demand for the securities today, we could see improvements in bonds again this afternoon.
The Commerce Department gave us the first of this morning’s two pieces of economic data. They announced that February’s Retail Sales fell a surprising 0.6%, compared to an increase of 0.4% that was forecasted. Even a secondary reading that excludes more volatile auto sales showed a 0.1% decline when analysts were expecting a 0.6% rise. These readings indicate that consumers spent far less last month than many had thought and since consumer spending makes up such a large portion of our overall economy, this is clearly good news for bonds and mortgage rates.
Today’s second piece of economic news was last week’s unemployment figures that was also posted at 8:30 AM ET. They revealed that 289,000 new claims for unemployment benefits were filed last week. This was a smaller number than the 306,000 that was predicted and well below the previous week’s revised total of 325,000 initial claims. The decline points towards a strengthening employment sector, so we can consider the news negative for bonds and mortgage rates. Fortunately, the Retail Sales report is a higher priority to traders and drew most of the focus this morning.
Tomorrow has the final two pieces of relevant economic data, both of which can affect mortgage rates. The Labor Department will post February’s Producer Price Index (PPI) at 8:30 AM ET tomorrow morning. This important index measures inflationary pressures at the producer level of the economy. There are two portions of the index- the overall reading and the core data. The core data is more important and is watched more closely because it excludes more volatile food and energy (including gasoline) prices. If the index shows a large increase, inflation concerns will rise, making long-term investments such as mortgage-related bonds less attractive to investors. This would lead to higher mortgage rates. Current forecasts are calling for a 0.3% increase in the overall reading and a 0.1% increase in the core data. The smaller the increase, the better the news it is for mortgage rates.
The University of Michigan will release their Index of Consumer Sentiment for March just before 10:00 AM ET tomorrow. This index gives us a measurement of consumer willingness to spend. If consumers are more confident in their own financial and employment situations, then they are more apt to make large purchases in the near future. This helps fuel consumer spending levels and economic growth. A drop in confidence will probably hurt the stock markets and boost bond prices, leading to lower mortgage rates if the PPI matches forecasts. Bad news for bonds and mortgage rates would be rising confidence. It is expected to show a reading of 95.8 which would be a small increase from February’s final reading 95.4.