Tuesday’s bond market has opened in negative territory due to early stock strength and stronger than expected housing news. The stock markets are showing noticeable gains with the Dow up 80 points and the Nasdaq up 62 points. The bond market is currently down 7/32 (2.21%), which will likely push this morning’s mortgage rates higher by approximately .125 of a discount point.
Today’s only relevant economic data came from the National Association of Realtors late this morning. They released their Existing Home Sales report for September that showed a 2.4% increase in home resales last month, exceeding forecasts. That increase pushed sales to their best levels in a year, indicating housing sector strength.
Stocks are reacting favorably to some overnight earnings news, particularly earnings from Apple that beat analysts’ expectations. I suspect any move in bonds or an intraday change in mortgage rates will be a result of stocks either extending their current gains or giving them up. If the major stock indexes remain near current levels, mortgage rates should follow suit today.
Tomorrow brings us the release of a key inflation reading that is important to the bond market. September’s Consumer Price Index (CPI) will be posted at 8:30 AM ET tomorrow, giving us a measurement of inflationary pressures at the very important consumer level of the economy. Analysts are expecting to see no change in the overall index and an increase of 0.2% in the core data. A larger than expected increase in the core reading could raise inflation concerns, pushing bond prices lower and mortgage rates higher tomorrow morning. Inflation is the number one nemesis of the bond market because it erodes the value of a bond’s future fixed interest payments. When inflation is a threat, even down the road, bonds sell for discounted prices that push their yields higher. And since mortgage rates tend to follow bond yields, this leads to higher rates for mortgage borrowers.