Tuesday’s bond market has opened in negative territory as yesterday’s weakness extends into today’s trading. The stock markets are in worse shape with the Dow down 145 points and the Nasdaq down 50 points. The bond market is currently down 4/32 (2.30%), which with yesterday’s selling should push this morning’s mortgage rates higher by approximately .375 of a discount point if comparing to Monday’s morning pricing. Nearly all of that increase is a result of yesterday’s late trading and not this morning’s open.
We saw a steady afternoon sell-off yesterday in both bonds and stocks. There was no particular reason or cause for it other than negative momentum on a global scale. That caused widespread upward rate revisions throughout the afternoon. Unfortunately though, the selling may not be over and I would not be completely surprised to see more intra-day revisions with nothing scheduled for today that has the importance to change the course of the markets.
Tomorrow does have a very important piece of economic data scheduled for release. April’s Retail Sales report will be posted at 8:30 AM ET tomorrow morning. This is an extremely important report for the financial markets since it measures consumer spending. Consumer spending makes up over two-thirds of the U.S. economy, so this data can have a pretty significant impact on the markets. Current forecasts are calling for a 0.2% increase in sales from March to April. A weaker than expected level of sales should push bond prices higher and mortgage rates lower tomorrow morning as it would signal that economic activity may not be as strong as thought. However, an unexpected increase could renew theories of economic growth that would lead to more bond selling, pushing mortgage rates higher again.
Also tomorrow is the first of this week’s two Treasury auctions that are likely to affect bond trading and mortgage rates. The Treasury will hold a 10-year Note sale tomorrow and a 30-year Bond sale Thursday. Results of the auctions will be posted at 1:00 PM ET each day. If they are met with a strong demand from investors, we could see bond prices rise enough during afternoon trading to cause downward revisions to mortgage rates. However, lackluster bidding in the sales, meaning longer-term securities are losing their appeal, could lead to higher mortgage pricing those afternoons. It is worth noting though that the recent bond slide makes it difficult to be too optimistic about these sales.