February 7th, 2011
There are only two pieces of monthly economic data scheduled for release this week; neither of them is considered to be highly important. There are two Treasury auctions on the calendar that may influence mortgage rates the middle part of the week, but no important economic data.
Nothing of concern is due today, Tuesday or Wednesday morning, leaving bond trading to be driven by the stock markets the first half of the week. If the major stock indexes move higher, we will probably see more funds move away from bonds and into stocks.
This would lead to higher mortgage rates as bond prices and yields move in opposite directions. Mortgage rates tend to follow bond yields, so we prefer to see bond prices go up, pushing rates lower.
The two important Treasury auctions come Wednesday and Thursday when 10-year Notes and 30-year Bonds are sold. The 10-year sale is the more important one as it will give us an indication for demand of mortgage-related securities.
If the sales are met with a strong demand from investors, we should see the bond market move higher during afternoon trading the days of the auctions. But a lackluster interest from buyers, particularly international investors, would indicate a waning appetite for longer-term U.S. securities and lead to broader bond selling. The selling in bonds would likely result in upward afternoon revisions to mortgage rates.
With little monthly and no quarterly economic reports being posted, Thursday’s weekly release of unemployment figures may end up moving the markets and mortgage rates more than it traditionally does.
The Labor Department is expected to announce that 413,000 new claims for unemployment benefits were filed last week, falling slightly from the previous week’s total. The higher the number of new claims for benefits, the better the news for the bond market and mortgage pricing.
The first monthly report comes early Friday morning when December’s Goods and Services Trade Balance data will be posted. This report measures the U.S. trade deficit and can affect the value of the U.S. dollar versus other currencies, but it usually does not cause enough movement in bond prices to affect mortgage rates. It is expected to show a $40.7 billion trade deficit.
February’s preliminary reading to the University of Michigan’s Index of Consumer Sentiment will be released late Friday morning. This index measures consumer willingness to spend and usually has a moderate impact on the financial markets. If it shows an increase in consumer confidence, the stock markets may move higher and bond prices could fall.
It is currently expected to come in at 75.5, up from January’s final reading of 74.2. That would indicate consumers were more optimistic about their own financial situations than last month and are more likely to make large purchases in the near future. Since consumer spending makes up two-thirds of the U.S. economy, this would be considered bad news for bonds and mortgage pricing.
Overall, despite being an extremely light week in terms of economic releases and relate events, it is still relatively crucial for the mortgage market. We saw the yield on the benchmark 10-year Treasury Note break above 3.50% and close at 3.65% last week. This should be of concern for mortgage shoppers as the 10-year was trading in a well-defined range until late last week. Since mortgage rates follow yields, we need to see some stabilization very soon or yields (and rates) may be moving higher.
I suspect it will be tough to fall below 3.5% unless we get some unexpected major news or a significant stock sell-off. Therefore, please be careful if still floating an interest rate this week as I believe we are set for a noticeable move in the very near future. However, the question is if it will be rates moving higher or lower from current levels.