January 17th, 2012
Tuesday’s bond market has opened up slightly despite a strong open in stocks. The Dow is currently up 112 points while the Nasdaq has gained 28 points. The bond market is currently up 2/32, which should improve this morning’s mortgage rates by approximately .125 of a discount point from Friday’s morning pricing.
There is nothing of relevance scheduled for release today, but the rest of the week brings us five pieces of economic data for the markets to digest. Two of them are considered to be highly important for the bond market and mortgage rates. The financial markets were closed yesterday in observance of the Martin Luther King holiday.
The first report of the week will be posted early tomorrow morning when the Labor Department’s Producer Price Index (PPI) will be posted at 8:30 AM ET. The PPI is important to the markets and mortgage rates because it measures inflationary pressures at the producer level of the economy. Analysts are expecting to see a 0.1% increase in the overall reading and a 0.1% increase in the more important core data reading that excludes volatile food and energy prices. A larger than expected increase in the core reading could mean higher mortgage rates tomorrow since inflation is the number one nemesis of the bond market. It erodes the value of a bond’s future fixed interest payments, making them less attractive to investors. Accordingly, they are sold at a discount to offset the drop in value, which drives their yields higher. And since mortgage rates follow bond yields, this means higher rates for borrowers.
December’s Industrial Production report will also be posted tomorrow morning, but at 9:15 AM ET. This data measures output at U.S. factories, mines and utilities, giving us an indication of manufacturing sector strength or weakness. Current forecasts are calling for an increase in production of 0.5% from November’s level. A smaller than expected increase would be considered good news for bonds and could help lower mortgage rates, but the PPI is by far the most important data of the day for the bond market and will have the biggest impact on that day’s mortgage pricing.
Overall, today will likely be the least active day for mortgage rates. The most important day will probably turn out to be tomorrow or Thursday with the two key inflation readings scheduled. But the stock markets and news from overseas can be a big influence on bond trading and mortgage pricing any day, so maintaining contact with your mortgage professional is recommended.