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Thursday’s bond market has opened down slightly following early stock
strength. The major stock indexes are showing noticeable gains during early
trading with the Dow up 86 points and the Nasdaq up 27 points. The bond
market is currently down 5/32, but due to strength late yesterday we should
see little change in this morning’s mortgage rates.
Yesterday’s 5-year Treasury Note auction didn’t draw a high level of
investor demand. Several of the indicators we use to gauge investor
interest showed average results or close to it. That didn’t stop bond
prices from improving during afternoon trading yesterday. However, it does
leave us little to be optimistic about in today’s 7-year Note auction.
These securities are a little closer in term to mortgage bonds, so the
results of today’s sale could have a bigger influence on the bond market
this afternoon than yesterday’s sale did. A high level of investor demand
should help boost bond prices and possibly cause a slight improvement to
mortgage rates. On the other hand, another lackluster sale could lead to
pressure in bonds and mortgage pricing. Results will be posted at 1:00 PM
ET, so any reaction will come during early afternoon trading.
The Labor Department gave us one of this morning’s two pieces of economic
data, both of which were posted at 8:30 AM ET. They announced that 305,000
new claims for unemployment benefits were filed last week, down from the
previous week’s revised total of 310,000. Analysts were expecting to see an
increase of approximately 15,000 initial claims, so we should technically
consider the data negative for the bond market and mortgage rates. However,
questions about the accuracy of the data due to computer glitches in two
states have prevented much of a reaction in the financial and mortgage
markets.
Also posted this morning was the final revision to the 2nd Quarter Gross
Domestic Product (GDP). It revealed an annual rate of economic growth of
2.5% during the April through June months. This matched the previous
revision and was close to analysts’ forecasts of a 2.5% annual rate. This
means that there were no significant surprises in what is considered to be
the final update for the 2nd quarter. The minor variance in data that is
quite aged at this point was not enough to draw much attention or affect
mortgage rates this morning. Market participants are now much more
interested in the current quarter’s data that will be posted next month
than results from 3 – 6 months ago.
Tomorrow also has two reports scheduled for release and both may influence
mortgage rates. The first is August's Personal Income and Outlays at 8:30
AM ET tomorrow. It gives us an indication of consumer ability to spend and
current spending habits. This is relevant to the markets because consumer
spending makes up over two-thirds of the U.S. economy. Rising income
generally indicates that consumers have more money to spend, making
economic growth more of a possibility. This is negative news for the bond
market and mortgage rates because it raises inflation and economic growth
concerns, making long-term securities such as mortgage-related bonds less
attractive to investors. It is expected to show an increase of 0.3% in
income and a 0.2% increase in spending. If we see weaker than expected
readings, the bond market should react positively, leading to slightly
lower rates tomorrow morning.
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 a 76.8 reading. Analysts are expecting
to see a small upward revision, meaning consumer confidence was slightly
stronger than previously thought. Rising confidence is looked at as bad
news for the bond market and mortgage pricing because it means consumers
are more likely to make a large purchase in the near future if they feel
better about their own financial and employment situations. And since consumer
spending makes up so much of our overall economy, higher levels of spending
translates into economic growth that hurts bond prices and leads to higher
mortgage rates. Ideally, bond traders would prefer to see a sizable decline
in consumer confidence.
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21 and 60 days... Float if my closing was taking place over 60 days from
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