|Wednesday’s bond market has opened down slightly following much stronger than expected economic news. The stock markets are showing modest gains with the Dow up 19 points and the Nasdaq up 8 points. The bond market is currently down 3/32 (2.53%), but due to strength late yesterday we should see little change in this morning’s mortgage rates.
The Commerce Department announced late this morning that sales of newly constructed homes rose a whopping 18.0% last month, greatly exceeding expectations. This pushed sales to their highest level in over 6 years and was the largest monthly increase in more than 22.5 years, indicating solid growth in the new home portion of the housing sector. That makes the data negative for the bond and mortgage markets, but fortunately this data is not considered highly important. Therefore, we are seeing a minimal reaction in the bond market and in today’s mortgage pricing.
Today brings us the first of this week’s two Treasury auctions that have the potential to affect rates. The Treasury is selling 5-year Notes today and 7-year Notes tomorrow. They will tell us if there is an appetite in the markets for medium-term securities. If investor demand in these sales is strong, particularly from international buyers, the broader bond market should move higher, pushing mortgage rates lower. However, a lackluster interest from investors could lead to bond selling and higher mortgage pricing later today. The results of today’s auction will be announced at 1:00 PM ET, so any reaction will come during early afternoon trading.
Tomorrow has two pieces of relevant economic data set for release. One is much more important to the markets than the other. August’s Durable Goods Orders is the first, which is the week’s single most important report. This report gives us an indication of manufacturing sector strength by tracking orders for big-ticket items at U.S. factories. Big-ticket products are items that are expected to last three or more years such as electronics and appliances. Analysts are expecting to see a large decline in new orders, indicating weakness in the manufacturing sector. A larger decline than the 17% that is being forecasted should help boost bond prices and cause mortgage rates to drop tomorrow because signs of economic weakness make longer-term securities more appealing to investors. However, a much smaller decline or an increase in new orders would indicate a stronger than expected manufacturing sector that would likely help push mortgage rates higher. It is worth noting that this data is known to be quite volatile from month-to-month, so a slight or moderate variance may not affect mortgage pricing.
Also being posted tomorrow is last week’s unemployment figures. They are expected to show that 300,000 new claims for unemployment benefits were filed last week. This would be an increase from the previous week’s 280,000 initial claims. The larger the number of new claims, the better the news it is for mortgage rates as rising claims is a sign of employment sector weakness. However, because this report tracks only a single week’s worth of new claims, it usually takes a surprise spike or drop for it to noticeably affect mortgage rates.