Wednesday’s bond market has opened in negative territory with stocks showing early strength and a related auction taking place today. The major stock indexes are posting sizable gains, pushing the Dow higher by 157 points and the Nasdaq up 33 points. The bond market is currently down 14/32 (2.08%), but due to strength in bonds late yesterday we should see an increase of only .125 of a discount point in this morning’s pricing.
There is no factual economic data being posted today, but we do have the first of this week’s two important Treasury auctions. The sale of 10-year Notes is taking place today while 30-year Bonds will be sold tomorrow. We often see some weakness in bonds ahead of the sales as the firms participating prepare for them. However, as long as the auctions are met with decent demand from investors, the firms usually buy them back. This tends to help recover any presale losses. But, if the sales are met with a lackluster interest from investors- particularly international buyers, the bond market may move lower after the results are posted and mortgage rates may move higher. Results will be announced at 1:00 PM, so any reaction will come during early afternoon trading.
Besides the 30-year Bond auction, tomorrow has two releases worth watching. The first is last week’s unemployment update at 8:30 AM ET. It is expected to show that 275,000 new claims for unemployment benefits were filed last week, down slightly from the previous week’s 277,000 initial claims. This report usually doesn’t cause much movement in the markets or mortgage rates unless it shows a significant jump or drop in initial claims for benefits. But since this week has so little to drive trading, it could draw more attention than it usually does. The higher the number of claims, the better the news it is for bonds and mortgage rates.
Also tomorrow, we will get the minutes from last month’s FOMC meeting. They will be posted at 2:00 PM ET, so any reaction to them will come during mid-afternoon trading. These may move the markets or could be a non-factor, depending on what they say. With little else being posted this week they will likely be a little more influential than usual. The key points traders are looking for are concerns over our domestic and the global economies, inflation and the Fed’s next monetary policy move. If Fed members were concerned about the economy continuing to grow, we may see the bond market move higher and mortgage rates lower tomorrow afternoon. It will be interesting to see how much debate and disagreement amongst members took place during the meeting, particularly about when they will start raising key short-term interest rates. It is worth noting though that the last FOMC meeting was followed by revised economic predications and a press conference with Fed Chair Yellen. Therefore, the likelihood of seeing a significant surprise in the minutes is relatively low.