|Thursday’s bond market has opened in positive territory with stocks showing sizable losses during early trading. The Dow is currently down 172 points and the Nasdaq has lost 71 points. The bond market is currently up 14/32 (2.51%), which should improve this morning’s mortgage rates by approximately .125 – .250 of a discount point. Limiting this morning’s improvement though, is weakness in bond trading late yesterday.
That weakness can partly be attributed to a weak 5-year Treasury auction yesterday. That doesn’t give us much to be optimistic about in today’s 7-year Note sale. Another auction with poor investor demand could put some pressure on bonds later this afternoon, but it appears stocks are going to drive bond trading the today. Results of the sale will be posted at 1:00 PM ET, so any reaction will come during early afternoon hours.
August’s Durable Goods Orders was this morning’s important data, revealing an 18.2% drop last month in new orders for big-ticket products at U.S. factories. While that is a sizable decline, it was expected due to a spike in airplane orders in July. If more volatile transportation-related orders are excluded, orders rose 0.7% as expected. In other words, even though this is a big headline number, it comes as no surprise to the markets. Therefore, we can consider the data neutral to slightly positive for bonds and mortgage rates.
Last week’s unemployment figures were also posted early this morning. They showed that 293,000 new claims for unemployment benefits were filed last week. This was an increase from the previous week but a little softer than the 300,000 that was expected. That also makes the news neutral for bonds, limiting any impact on this morning’s mortgage rates.
The week closes tomorrow with two more pieces of economic data for the markets to digest. The first is the final revision to the 2nd Quarter Gross Domestic Product (GDP). Since this data is aged now and the preliminary reading of the 3rd Quarter GDP will be released next month, I don’t see this revision having much of an impact on the financial markets or mortgage pricing. The GDP is generally important because it is the total sum of all goods and services produced within the U.S. and is considered the best measurement of economic activity. It is expected to show that the economy grew at an annual rate of 4.6%. This would be a stronger pace than the previous estimate of 4.2%, making the data negative for bonds and mortgage rates. The lower the number, the better the news it is for mortgage rates.
The second report of the day is the University of Michigan’s revised Index of Consumer Sentiment for September. The preliminary reading that was released earlier this month showed an 84.6 reading. Analysts are expecting to see a small upward revision, meaning consumer confidence was slightly stronger than previously thought. Waning confidence is good news for bonds because consumers that are concerned about their own financial and employment situations are less likely to make a large purchase in the near future, limiting economic growth. Therefore, a lower than expected reading would be favorable news for bonds and should help improve mortgage rates.