Tuesday’s bond market has opened down slightly following stronger than anticipated economic news. The stock markets are mixed but fairly calm with the Dow down 3 points and the Nasdaq up 12 points. The bond market is currently down 1/32 (1.91%), which should keep this morning’s mortgage rates close to yesterday’s levels.
There were two pieces of economic data posted this morning. The first was February’s Consumer Price Index (CPI) at 8:30 AM ET. It showed a 0.2% increase in both the overall and core readings. The overall matched forecasts but the more important core reading that excludes volatile food and energy prices was stronger than the 0.1% that was expected. Because higher levels of inflation make long-term securities such as mortgage-related bonds less attractive to investors, we can consider this report slightly negative for bonds and mortgage rates.
The Commerce Department gave us February’s New Home Sales figures at 10:00 AM ET. They announced that sales of newly constructed homes rose 7.8% last month, greatly exceeding forecasts and reaching a 7-year high. Analysts were expecting to see a decline in sales, indicating weakness in the sector. However, this data points towards strength in the sector, making it bad news for the bond market and mortgage rates.
Tomorrow’s only relevant economic data is February’s Durable Goods Orders at 8:30 AM ET, but it is the week’s most important release. This Commerce Department report gives us a measurement of manufacturing sector strength by tracking new orders for big-ticket items, or products that are expected to last three or more years such as electronics, appliances and airplanes. This data is known to be volatile from month to month but is still considered to be of fairly high importance to the markets. Analysts are expecting it to show an increase in new orders of approximately 0.4%. A much larger increase would be considered negative for bonds as it would indicate economic strength and could lead to higher mortgage rates tomorrow morning. Since these orders are volatile, it will take a wider variance from forecasts for it to move mortgage rates than other data requires.
Also tomorrow is the first of this week’s two Treasury auctions that have the potential to affect mortgage rates. 5-year Notes will be sold tomorrow while 7-year Notes go Thursday. Neither of these sales will directly impact mortgage pricing, but they can influence general bond market sentiment. If the sales go poorly, we could see broader selling in the bond market that leads to upward revisions to mortgage rates. However, strong sales usually make bonds more attractive to investors and bring more funds into the bond market. The buying of bonds that follows often translates into lower mortgage rates. Results of the sales will be posted at 1:00 PM ET auction day, so look for any reaction to come during afternoon hours.