Thursday’s bond market has opened in positive territory following favorable economic news and a weak opening in stocks. The major stock indexes are showing sizable losses with the Dow down 147 points and the Nasdaq down 17 points. The bond market is currently up 5/32 (2.31%), which should improve this morning’s mortgage rates by approximately .125 of a discount point over Tuesday’s pricing. The bond market was closed yesterday in observance of the Veterans Day holiday.
Today’s only relevant data was last week’s unemployment figures at 8:30 AM ET. They showed that 276,000 new claims for unemployment benefits were filed last week. This matched the previous week’s number and was higher than forecasts. Analysts were expecting a decline to 266,000 initial claims, so this is good news for bonds because the higher number indicates the employment sector was not as strong as thought last week. Unfortunately, this is only a weekly report, so its impact on today’s bond trading and mortgage rates has been minimal.
We also have today’s 30-year Bond auction to watch. Results will be posted at 1:00 PM ET, so any reaction will come during early afternoon hours. Tuesday’s 10-year Note sale went pretty well with several benchmarks pointing towards a strong level of investor interest. If today’s sale goes equally well, we may see bonds improve enough to cause a small downward revision to mortgage rates before the end of the day. However, a weak demand for the securities could lead to an upward move in mortgage pricing.
Tomorrow has three pieces of economic data scheduled for released. The Commerce Department will start it with October’s Retail Sales figures at 8:30 AM ET. This data measures consumer or retail level spending. It is considered extremely important to the markets because consumer spending makes up over two-thirds of the U.S. economy. It is expected to show a 0.3% increase, meaning consumers spent more last month than they did in September. A larger increase in spending would be considered negative news for bonds because rising spending fuels economic growth and raises inflation concerns in the bond market. If tomorrow’s report reveals a decline in spending that indicates consumers spent less than thought, bonds should react favorably, pushing mortgage rates lower. If it shows an unexpected increase, mortgage rates will likely move higher.
Next up is October’s Producer Price Index (PPI), also at 8:30 AM ET. This is considered to be a key inflation reading that tracks inflationary pressures at the manufacturing level of the economy. There are two portions of the index that are used- the overall reading and the core data reading. The core data is the more important of the two because it excludes more volatile food and energy prices. Signs of rapidly rising inflation make long-term securities such as mortgage-related bonds less attractive to investors and leads to higher mortgage rates. The overall reading is expected to show a 0.1% increase from September while the core data is expected to rise 0.1% also. Weaker than expected readings would be good news for bonds and mortgage rates, while a larger than forecasted increase in the core reading could lead to higher mortgage rates tomorrow morning.
The week’s economic calendar closes late tomorrow morning when November’s preliminary reading of the University of Michigan’s Index of Consumer Sentiment is posted. This index measures consumer confidence, which gives us an indication of consumer willingness to spend. It is expected to show a reading of 92.0, up from October’s final reading of 90.0. That would be considered negative news for bonds because rising sentiment means consumers are more optimistic about their own financial situations and are more likely to make large purchases in the near future. And with consumer spending so important, any related data is watched closely. The lower the reading, the better the news it is for mortgage shoppers.