Thursday’s bond market has opened fairly flat despite sizable stock losses during early trading. The major stock indexes are giving back a good part of yesterday’s gains with the Dow down 125 points and the Nasdaq down 22 points. The bond market is currently almost unchanged from yesterday’s close (2.32%), but due to the late rally yesterday we should see this morning’s mortgage rates be approximately .125 – .250 of a discount point lower if comparing to Wednesday’s morning pricing.
We saw another afternoon rally in bonds yesterday. It was not a result of the 10-year Note auction though. That sale did not go well with several benchmarks we use to gauge investor demand showing a lackluster interest. What fueled the bond and stock buying late yesterday was the minutes from last month’s FOMC meeting. The most important bond-friendly points were growing concerns about overseas economic growth and an indication that the Fed may start raising key short-term interest rates later next year rather than earlier. The minutes revealed that many FOMC members want to start raising rates when the economy and inflation are ideal, not to a set calendar date. The reaction was overwhelmingly positive for both stocks and bonds, causing many lenders to improve rates during late afternoon trading yesterday.
Last week’s unemployment figures were posted at 8:30 AM this morning, showing that 287,000 new claims for unemployment benefits were filed. That nearly matched the previous week’s revised total of 288,000 initial claims, hinting at little change in the employment sector last week. Since analysts were expecting to see an increase in claims that would have pointed towards a softening employment market, we should consider the data slightly negative for bonds and mortgage rates.
We also have today’s 30-year Bond auction to watch for. Results of the sale will be posted at 1:00 PM ET. If investor demand was similar to yesterday’s sale, we can expect to see some weakness in bonds later today, possibly leading to an increase in mortgage rates during afternoon trading. On the other hand, a strong auction could help push bond prices a little higher and mortgage rates slightly lower.
There is nothing of importance scheduled for tomorrow other than several Fed member speaking engagements. Their words can influence the markets, especially on a day with nothing else being released. I would not be surprised to also see some profit-taking from investors to capture some gains from this week’s bond rally. And since corporate earnings season has kicked off, we can also expect stocks to influence bond trading, although yesterday’s activity defied traditional trends that show stock gains usually translates into bond weakness. In other words, even though we don’t have factual economic data scheduled tomorrow, we still may see a fairly active day in the markets and mortgage pricing. It is my opinion that it is more likely to be a negative day for rates than a positive one.