Monday’s bond market has opened in positive territory following weaker than expected economic news and a relatively uneventful opening in stocks. The major stock indexes are starting the week mixed with the Dow up 12 points and the Nasdaq down 34 points. The bond market is currently up 6/32 (2.58%), which should improve this morning’s mortgage rates by approximately .125 of a discount point.
Today’s only relevant economic data was August’s Industrial Production report at 9:15 AM ET. It revealed a 0.1% decline in output at U.S. factories, mines and utilities. Analysts were expecting to see a 0.3% increase, indicating that the manufacturing sector was a little weaker than many had thought last month. That makes the data good news for bonds and mortgage rates.
The rest of the week brings us the release of four more relevant economic reports and an afternoon of FOMC events. A couple of items on this week’s calendar are considered to be highly important to the financial and mortgage markets, including tomorrow’s Producer Price Index (PPI). The Labor Department will post August’s PPI at 8:30 AM ET tomorrow, 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 no change 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. 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.
Overall, there is little doubt that this is going to be an active week for the financial and mortgage markets. Wednesday is the key day due to the FOMC schedule. Tomorrow and Wednesday morning’s data is very important to bonds and Wednesday’s afternoon trading could carry into Thursday morning also. In other words, expect to see the most movement in mortgage pricing the middle days of the week.