Thursday’s bond market has opened flat despite early stock weakness. The major stock indexes are showing noticeable losses with the Dow down 72 points and the Nasdaq down 20 points. The bond market is currently down 1/32 (2.13%), but strength late yesterday should improve this morning’s mortgage rates by approximately .125 of a discount point if comparing to Wednesday’s morning pricing.
We saw strength in bonds late yesterday that caused some lenders to improve rates slightly. A pretty strong 5-year Treasury Note auction likely contributed to some of the improvement but not the sole cause. However, the decent level of investor demand in the 5-year securities helps to be optimistic about today’s 7-year Note sale. Results will be posted at 1:00 PM ET, so any reaction to the auction will come during early afternoon hours. The stronger demand for the securities, the better the chance we will see mortgage rates improve.
This morning’s only economic data was last week’s unemployment figures at 8:30 AM ET. They revealed that 282,000 new claims for unemployment benefits were filed last week. That is up from the previous week’s revised total of 275,000 initial claims and higher than forecasts, hinting at a weakening employment sector. Accordingly, we can consider the data slightly favorable to bonds and mortgage rates, but the fact it is only a weekly snapshot of the sector has prevented the news from influencing today’s rates.
Tomorrow has two reports scheduled for release that may affect mortgage rates. The first is the revision to the 1st quarter Gross Domestic Product (GDP) at 8:30 AM ET. This is the first of two revisions in the GDP that we get. The second revision to this index comes next month but isn’t expected to carry much importance. The GDP is the sum of all goods and services produced in the U.S. and is considered to be the best measurement of economic growth. Last month’s preliminary reading revealed a 0.2% annual rate of growth. Analysts expect a downward revision of 0.9% in this update, equating to economic contraction of 0.7%. If the revision comes in much stronger than expected, we may see the bond market react negatively and mortgage rates move higher because it would mean the economy was stronger than thought last quarter. It will be interesting to see how the markets react if we did have economic contraction during the first three months of the year since bonds tend to thrive during weaker economic conditions.
The last relevant data of the week will come from the University of Michigan, who will update their Index of Consumer Sentiment for May just before 10:00 AM ET tomorrow. This type of data is watched fairly closely because when consumers are feeling more confident about their own financial situations, they are more likely to make a large purchase in the near future. Rising confidence and the higher levels of spending that usually follow are considered negative news for bonds and mortgage rates. Tomorrow’s report is expected to show a small upward revision to this month’s preliminary reading of 88.6. A higher reading would be considered bad news for bonds and mortgage pricing while a decline should help boost bond prices and lead to a slight improvement in rates.