Wednesday’s bond market has opened in positive territory due to early stock selling, erasing yesterday’s losses. The stock markets are reacting negatively to unfavorable earnings news and renewed concerns about Greece and its potential impact on the global economy. This has pushed the Dow down 144 points and the Nasdaq down 24 points. The bond market is currently up 15/32, which should improve this morning’s mortgage ratesby approximately .125 – .250 of a discount point.
The Commerce Department reported late this morning that sales of newly constructed homes rose 3.3% last month, in line with analysts’ forecasts. Even though this is a sizableincrease, sales were well below the level that many feel is needed to keep the economy growing at an acceptable pace. Since the data showed no significant surprises and is not considered to be a highly influential report in the first place, it has had little impact on this morning’s bond trading and mortgage pricing.
We also have to watch the 5-year Treasury Note sale today and 7-year Note sale tomorrow that can also influence bond trading and mortgage pricing. A strong demand from investors could help fuel buying in the broader bond market, leading to improvements in mortgage rates later today and possibly tomorrow afternoon. However, a weak demand in the auctions could have the opposite effect on bonds and mortgagerates. Results of the sales will be posted at 1:00 PM ET each day, so any reaction will come during afternoon hours.
Tomorrow has the week’s most important report scheduled along with the Labor Department’s weekly unemployment update. April’s Durable Goods Orders is the more important one as it gives us an indication of manufacturing sector strength by tracking orders at U.S. factories for big-ticket products. These are items made with an expected life span of three or more years. It is currently expected to show an increase in new orders of approximately 0.3%, indicating the manufacturing sector remained fairly flat last month. That would be relatively good news for the bond market and mortgage rates, but this data is known to be quite volatile from month to month. Therefore, a small variance from forecasts would likely have little impact on tomorrow’s mortgage rates.
The Labor Department is expected to announce that 365,000 new claims for unemployment benefits were filed last week, down approximately 5,000 from the previous week. We have seen a regular pattern of upward revisions to the previous week’s number each of the past several weeks, so it would not be surprising to see last week’s estimate of 370,000 revised upward. Generally speaking, the bond market prefers to see increases in new claims as it indicates employment sector weakness. However, since this report really tracks only a single week’s worth of new claims, its impact on mortgagerates is usually minimal unless it shows a significant surprise. I am expecting the Durable Goods Orders report to have a bigger influence on bond trading and mortgage ratestomorrow than the weekly unemployment numbers.
