Thursday’s bond market has opened in negative territory, extending yesterday’s post-FOMC selling. The stock markets are giving back some of yesterday’s gains with the Dow down 59 points and the Nasdaq down 17 points. The bond market has added to yesterday’s losses, down 16/32 this morning (2.15%). This should push mortgage rates higher an additional .125 – .250 of a discount point. Combined with yesterday’s late revision, we should see an increase of approximately .375 of a discount point from Wednesday’s morning pricing.
The preliminary reading of the 3rd Quarter Gross Domestic Product (GDP) was released at 8:30 AM ET today. It showed that the U.S. economy grew at a 1.5% annual rate, falling just short of the 1.6% that was expected. This is a sizable decline from the 2nd quarter’s 3.9% rate, but since it was not far from expectations, the news has had little impact on this morning’s bond trading and mortgage pricing.
Also posted early this morning was last week’s unemployment figures. They showed that 260,000 new claims for unemployment benefits were filed last week. This was up slightly from the previous week’s 259,000 but short of the 264,000 initial claims that were forecasted. The fact the number was softer than expected makes the data negative for mortgage rates. However, this number is not affecting this morning’s trading. It is a small miss in a weekly report, which is not enough to fuel this morning’s bond selling.
We also need to watch for the results of today’s 7-year Treasury Note auction at 1:00 PM ET. Yesterday’s 5-year Note sale did not go well, so we don’t have a lot to be optimistic about in today’s auction. If the sale was met with a poor demand from investors, we could see some further selling in bonds later today. Although, I don’t believe it will be enough to cause a change to mortgage rates on its own.
Tomorrow has three economic reports scheduled that may affect mortgage rates. The 3rd Quarter Employment Cost Index (ECI) will be released at 8:30 AM ET. It is the least important of the day’s three reports. This data tracks employer costs for salaries and benefits, giving us an indication of wage inflation pressures. Rapidly rising costs raise wage inflation concerns and may hurt bond prices. It is expected to show an increase in costs of 0.5%. A smaller than expected increase would be good news for mortgage rates, but this is not one of the more important reports of the week. That means will take a large variance from forecasts for this report of have a noticeable influence on mortgage pricing.
September’s Personal Income and Outlays report will also be posted early tomorrow morning. This data gives us an indication of consumer ability to spend and current spending habits. It is important to the markets because consumer spending makes up such a large part of the U.S. economy. Rising income generally indicates that consumers have more money to spend, making economic growth more of a possibility. This is bad news for the bond market and mortgage rates because it raises inflation concerns, making long-term securities such as mortgage related bonds less attractive to investors. Analysts are expecting to see a 0.2% increase in income and a 0.2% rise in spending. Smaller than expected increases in both readings would be good news for the bond market and mortgage pricing.
The week’s last report comes just before 10:00 AM ET when the University of Michigan updates their Index of Consumer Sentiment for this month. This report is moderately important because it helps us measure consumer confidence, which is believed to indicate consumers’ willingness to spend. Current forecasts show this index rising from its preliminary reading of 92.1 to 92.6. Good news for mortgage rates would be a sizable decline in the index.