Thursday’s bond market has opened in negative territory. The stock markets are showing modest gains, but follow significant weakness late yesterday. The Dow is currently up 21 points while the Nasdaq has gained 17 points. The bond market is currently down 5/32 (2.21%), but due to strength during afternoon trading yesterday we should still see a slight improvement in this morning’s pricing if comparing to Wednesday’s early rates.
We saw bonds rally yesterday afternoon as stocks slid. The 10-year Treasury Note auction didn’t help much but didn’t hurt bonds either. It was met with a respectable level of interest, although we can’t say strong. The rally in bonds didn’t start when results were posted, so I am attributing it mostly to stocks that started off well in positive territory but closed with sizable losses. Yesterday’s results do help us to remain optimistic about today’s 30-year Bond auction though. If there is a strong demand for the securities, we may see afternoon strength in bonds that lead to an improvement in mortgage rates. Results will be posted at 1:00 PM ET, so any reaction will come during early afternoon trading.
The only relevant economic news of the day was last week’s unemployment figures at 8:30 AM ET. They revealed that 275,000 new claims for unemployment benefits were filed last week. This was a dip from the previous week’s revised total of 281,000 initial claims, indicating that the employment sector strengthened a little last week. That technically makes the data bad news for mortgage rates, but since this is only a weekly snapshot, it has had little impact on this morning’s bond trading or mortgage pricing.
Tomorrow morning has two pieces of economic data scheduled for release. The first is the Labor Department’s Producer Price Index (PPI) for August, giving us an important measurement of inflationary pressures at the producer level of the economy. There are two readings that analysts follow in this release. They are the overall index and the core data reading. The core data is the more important of the two since it excludes more volatile food and energy prices. Analysts are predicting a 0.1% decline in the overall index and a rise of 0.1% in the core data. Stronger than expected readings could fuel inflation concerns in the bond market and make a Fed rate increase come sooner than later. That would be bad news for bonds and mortgage rates because inflation is the number one nemesis of the bond market as it erodes the value of a bond’s future fixed interest payments. As inflation becomes more of a concern in the markets, bonds become less appealing to investors, leading to falling prices, rising yields and higher mortgage rates. Ideally, we would like to see declines in both readings.
The second and final monthly release of the week will be posted by the University of Michigan late tomorrow morning. Their Index of Consumer Sentiment for September will give us an indication of consumer confidence, which projects consumer willingness to spend. If a consumer’s confidence in their own financial situation is rising, they are more apt to make large purchases in the near future. But, if they are growing more concerned about their job security or finances, they probably will delay making that sizable purchase. This influences future consumer spending data and therefore, impacts the financial markets. It is expected to show a reading of 91.5 that would mean confidence slipped from August’s level of 91.9. That would be considered slightly good news for bonds and mortgage rates.