Updated on April 26, 2018 10:31:45 AM EDT
Yesterday’s 5-year Treasury Note auction went relatively well, but not overly strong. A couple benchmarks we use to gauge investor demand indicated interest in the securities while others we less favorable. The bond market didn’t have much of a reaction the news yesterday afternoon. We will be watching today’s 7-year Note auction also. Results of it will be posted at 1:00 PM ET, so any reaction will come during early afternoon trading. A stronger demand for the securities may help boost bond prices later today, possibly leading to a slight improvement in mortgage pricing.
There were two pieces of economic data posted at 8:30 AM ET today with the more important being Marchs Durable Goods Orders. The Commerce Department announced a 2.6% increase in new factory orders for big-ticket products. That exceeded forecasts of 1.9%, but the good news came in a secondary reading that excludes more costly and volatile transportation-related orders (airplanes). It came in unchanged when analysts were expecting to see a 0.6% rise. The headline number isn’t favorable, however, the ex-transportation reading is. Therefore, we can consider the data to be neutral-to-slightly negative for bonds and mortgage rates.
Today’s second release was last week’s unemployment figures that revealed 209,000 new claims for unemployment benefits were filed, falling short of the 225,000 that was expected. It also was a sizable decline from the previous week’s revised 233,000 initial filings, hinting that the employment sector was a bit stronger than thought last week.
Tomorrow has three economic reports set for release. The big news will come at 8:30 AM ET, when the preliminary version of the 1st Quarter Gross Domestic Product (GDP) will be posted. There is a strong argument to be made that this is the single most important report that we see on a regular basis. The GDP is the sum of all products and services produced in the U.S. and is considered to be the best measure of economic growth or contraction. I expect this report to cause noticeable movement in the financial markets and therefore, the mortgage market also. Analysts are expecting it to show that the economy grew at an annual rate of 2.1% during the first three months of this year. That would be a much slower pace than the 2.9% pace of the final quarter of last year. A weaker rate of growth would be considered good news for mortgage rates. But a stronger than expected reading would almost certainly cause stock prices to rise and bond prices to fall, leading to higher mortgage rates tomorrow morning.
Also early tomorrow is the 1st Quarter Employment Cost Index (ECI). This index tracks employer costs for wages and benefits, giving us a measurement of wage-inflation. If it shows a large increase, we may see wage inflation concerns rise as employers will need to pass those increases into the pricing of their products and services. That would be bad news for bonds and mortgage rates. A smaller than expected increase would be good news, although I doubt this report will affect mortgage rates because the GDP is a key piece of data and will draw the most attention. Current forecasts are showing a rise of 0.7%.
The week closes with the University of Michigans revised Index of Consumer Sentiment for April just before 10:00 AM ET. This report gives us an indication of consumer sentiment and their willingness to spend. Current forecasts are calling for little change from the preliminary reading of 97.8. This means that surveyed consumers were no more or less optimistic about their own financial situations as they were earlier this month. I dont expect this report to have a significant impact on bonds and mortgage pricing either, but can cause a small move if it shows a noticeable revision.
©Mortgage Commentary 2018