Thursday’s bond market has opened in positive territory, recovering yesterday’s post-FOMC minutes losses in mortgage bonds. The stock markets are in selling mode this morning with the Dow down 137 points and the Nasdaq down 38 points. The bond market is currently up 7/32 (1.83%), but due to weakness yesterday afternoon, we should see little change in rates if comparing to Wednesday’s morning pricing.
Yesterday’s afternoon release of the FOMC minutes ended up being problematic for the bond and mortgage markets. They seemed to indicate the Fed is more likely to raise key short-term rates at next month’s FOMC meeting than many analysts had previously thought. The minutes also gave the impression that the Fed is comfortable that inflation is rising and will hit their goal of a 2.0% annual pace sooner than the markets were expecting. Accordingly, bonds turned south after the minutes were released at 2:00 PM, causing many lenders to revise rates higher before the end of the day. That said, this morning’s gains should erase or offset that intraday revision late yesterday.
Last week’s unemployment figures were posted early this morning, showing that 278,000 new claims for benefits were filed last week. This was a decline from the previous week’s total of 294,000 initial claims. The decline means the employment sector appears to have strengthened last week. However, since the 278,000 matched forecasts, it has had little impact on today’s trading.
The second report of the day was April’s Leading Economic Indicators (LEI) at 10:00 AM ET. It gave us negative news with a 0.6% jump in the indicators that attempt to predict economic activity over the next several months. Since analysts were expecting to see a 0.3% increase, we should consider this data bad news for mortgage rates. Fortunately though, this is a minor release and has had a minimal influence on today’s trading.
Tomorrow has one piece of relevant economic data, coming from the National Association of Realtors. They will give us their Existing Home Sales report at 10:00 AM ET tomorrow. This data tracks resales of existing homes in the U.S. during April, giving us a measurement of housing sector strength and mortgage credit demand. This type of data is relevant because a weakening housing sector makes broader economic growth less likely. Current forecasts are calling for a small increase in home sales between March and April. Ideally, the bond market would prefer to see a decline, indicating housing sector weakness. A large increase in sales could lead to bond weakness and a slight increase in mortgage rates Friday morning since a strengthening housing sector raises optimism about general economic growth.