Friday’s bond market has opened flat despite favorable results from this morning’s economic data. The stock markets are showing sizable losses during early trading with the Dow down 110 points and the Nasdaq down 7 points. The bond market is currently up 1/32 (2.10%), but we will likely still see this morning’s mortgage rates higher by approximately .125 of a discount point.
We saw some afternoon weakness in bonds yesterday that caused some lenders to make an upward intra-day revision to rates. Bonds had weakened from morning levels before results of the 30-year Bond auction were posted but they moved even lower after. The sale did not go very well and not nearly as good as Wednesday’s 10-year Note auction. That helped fuel some selling in the broader bond market, leading to slightly higher mortgage pricing from lenders late in the day.
February’s Producer Price Index (PPI) was posted at 8:30 AM ET this morning, revealing a surprise drop in prices at the producer level of the economy. Today’s release showed a 0.5% decline in both the overall and core readings. These fell well short of expectations and indicates that inflation at the producer level of the economy apparently is not much of a threat. Not only is rising inflation a problem for long-term securities such as mortgage-related bonds, it is also needed for the Fed to start raising key short-term interest rates. In other words, the decline in inflationary pressures could signal a delay in the Fed’s first rate increase that is expected sometime this year. Therefore, this data is clearly good news for bonds and mortgage shoppers.
The second report of the morning was the University of Michigan’s March Index of Consumer Sentiment just before 10:00 AM ET. It showed a reading of 91.2 that was well below forecasts of 95.8 and a noticeable drop from February’s 95.4. This means surveyed consumers were less optimistic about their own financial and employment situations than many had thought. Because waning confidence usually translates into weaker levels of consumer spending, we should consider the news favorable for mortgage rates.
Next week doesn’t bring too much in terms of relevant economic data, but it does have another FOMC meeting scheduled. In addition to the meeting itself and post-adjournment statement, the Fed will also revise their economic projections for the country and there will be a press-conference hosted by Fed Chair Janet Yellen. Monday does have a piece of data being posted during mid-morning trading in February’s Industrial Production report, but it is not considered to be a key piece of data. Besides the FOMC events, there is not too much to be concerned with the remaining days. Look for details on next week’s schedule in Sunday evening’s weekly preview.