Monday’s bond market has opened in positive territory despite gains in stocks also. The major stock indexes are starting the week by recovering part of Friday’s losses with the Dow up 73 points and the Nasdaq up 3 points. The bond market is currently up 13/32 (2.20%), which should improve this morning’s mortgage rates by approximately .125 – .250 of a discount point if comparing to Friday’s morning pricing.
There is nothing of relevance scheduled for release today or tomorrow that is expected to affect mortgage rates. This morning’s bond strength can partly be attributed to gains from overseas bond markets, particularly from European Central Bank (ECB) purchases that are the kick-off of their QE stimulus program. The ECB isn’t buying U.S. securities in this program, but the momentum is spilling into foreign markets, including ours. This should just be a temporary reaction, exaggerated by a lack of data here, that I don’t believe will have an impact on our trading any longer than a day or so.
The rest of the week brings us the release of only three relevant economic reports along with two Treasury auctions for the markets to digest. Two of the three reports are considered highly important, so we could see a fair amount of movement in rates the latter part of the week again.
The first thing on this week’s calendar will come Wednesday afternoon. There are two Treasury auctions this week that could potentially affect mortgage rates. The first is the 10-year Treasury Note auction Wednesday and the 30-year bond sale will be held Thursday. Results of both sales will be posted at 1:00 PM ET on the sale days. If investor demand was high, we may see bonds rally during afternoon trading as it would hint that investors still have an appetite for longer-term securities. However, weak demand in the sales could lead to selling and an increase in mortgage rates late Wednesday and/or Thursday.
Overall, I would label Thursday as the most important day of the week because of the Retail Sales data, but Friday is also likely to be active for mortgage rates with two reports set for release. The yield on the benchmark 10-year Treasury Note closed last week at 2.24%, partly due to a much stronger than anticipated Employment report Friday. This is troublesome for mortgage borrowers because rates tend to follow bond yields. This week will tell us a lot about which direction bond yields and mortgage pricing will be headed in the near future. It will be interesting to see if it moves closer to 2.40% or back toward 2.00%. I suspect it is going to move higher before moving much lower, so please be careful if still floating an interest rate and closing in the near future.