Thursday’s bond market has opened in positive territory following favorable economic news. The major stock indexes are showing sizable gains with the Dow up 154 points and the Nasdaq up 40 points. The bond market is currently up 12/32 (2.23%), but due to strong selling late yesterday we should see little change in this morning’s mortgage rates if comparing to Wednesday’s early pricing.
We saw bonds turn south late yesterday but it could not have been a result of the 10-year Treasury Note auction. The auction went extremely well with many of the benchmarks we use to gauge investor demand showing strong levels of interest. Still, bonds weakened during afternoon trading, causing most lenders to revise rates upward. On the bright side, the demand in yesterday’s sale helps us to be optimistic about today’s 30-year Bond auction. By theory, a strong sale should be good for bonds and mortgage rates this afternoon. Results of the sale will be posted at 1:00 PM ET, so any reaction will come during early afternoon trading.
April’s Producer Price Index (PPI) was the first of two reports that were posted at 8:30 AM ET this morning. It revealed a 0.4% decline in the overall reading and a 0.2% drop in the more important core reading that excludes more volatile food and energy prices. Both readings were weaker than analysts’ forecasts of up 0.2% and 0.1% respectively, meaning inflationary pressures at the producer level of the economy were softer than many had thought. That makes the data good news for the bond and mortgage markets.
Last week’s unemployment figures were also posted early this morning. They showed that 264,000 new claims for unemployment benefits were filed last week, down slightly from the previous week’s 265,000 initial claims. Analysts were expecting to see a larger increase in claims, so we can consider the news neutral to slightly negative for mortgage rates.
There are two more pieces of relevant economic data set for release tomorrow morning. April’s Industrial Production will be posted at 9:15 AM ET. It measures manufacturing sector strength by tracking output at U.S. factories, mines and utilities. It is expected to show a 0.1% increase in production, indicating that manufacturing activity was fairly flat. A decline in output would be good news for the bond market and mortgage rates because it would indicate that the manufacturing sector is not as strong as thought. This report is considered to be moderately important, so it will likely need to show unexpected strength or weakness to cause movement in mortgage rates.
May’s preliminary reading to the University of Michigan’s Index of Consumer Sentiment will close out the week’s calendar just before 10:00 AM ET tomorrow. This index measures consumer willingness to spend, which relates to consumer spending. If consumers are more confident in their own financial situations, they are more apt to make large purchases in the near future. This report usually has a moderate impact on the financial markets though, because it is not exactly factual data. It is expected to show a reading of 96.0, which would be a slight change from April’s final reading of 95.9, indicating consumers are a just as confident as last month. If it shows a large decline in consumer confidence, bond prices could rise and mortgage rates would move slightly lower because waning confidence means consumers are less apt to make a large purchase in the near future.