Updated on May 25, 2017 10:15:05 AM EDT
We saw bonds improve yesterday afternoon following two favorable events. First, the 5-year Treasury Note sale was very well with several benchmarks pointing towards a strong demand for the securities. That allows us to be optimistic about today’s 7-year Note auction. If it is also well received, we could see bonds improve again this afternoon, possibly leading to a slight improvement in mortgage pricing. Results will be posted at 1:00 PM ET, so any reaction will come during early afternoon trading.
Also late yesterday was the release of the minutes from this month’s FOMC meeting. They didn’t reveal many surprises, especially on key topics such as when they may make their next increase to key short-term interest rates. However, the bond market responded well to discussion about the Fed’s balance sheet and their intentions regarding reducing their holdings. `It appears that the consensus amongst Fed members is a path that is not as drastic as some had previously thought. That allowed bonds to rise, leading to many lenders improving rates before closing yesterday.
Last week’s unemployment figures were released at 8:30 AM ET this morning. They revealed that 234,000 new claims for unemployment benefits were made last week, rising slightly from the previous week’s revised 233,000. Analysts were expecting to see 238,000 initial filings, so while an increase is the right direction for mortgage rates, it still fell short of forecasts. Therefore, we should consider the data slightly negative to neutral for mortgage shoppers.
Tomorrow has three reports scheduled that are relevant to mortgage rates. The first revision to the 1st quarter Gross Domestic Product (GDP) will come at 8:30 AM ET. The GDP is the sum of all goods and services produced in the U.S. and is considered to be the best measurement of economic growth. Last months preliminary reading revealed a 0.7% annual rate of growth. Forecasts are calling for an upward revision of 0.1% in this update, equating to economic growth of 0.8%. If the revision comes in much stronger than expected, we may see the bond market react negatively and mortgage rates move higher because it would mean the economy was stronger than thought last quarter. Since bonds tend to thrive in weaker economic conditions, a softer than predicted reading would be good news for mortgage rates.
Aprils Durable Goods Orders will also be released early tomorrow morning. This data 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 such as airplanes, appliances and electronics. It is currently expected to show a decline in new orders of approximately 1.8%, hinting that the manufacturing sector weakened last month. That would be relatively good news for the bond market and mortgage rates, but this data is known to be quite volatile. Therefore, a small variance from forecasts will likely have little impact on mortgage rates. The larger the decline, the better the news it is for mortgage rates.
The last mortgage-related data of the week will come from the University of Michigan late tomorrow morning when they update their Index of Consumer Sentiment for May. This type of data is watched fairly closely because when consumers are feeling more confident about their own financial situations, they are more likely to make a large purchase in the near future. Rising confidence and the higher levels of spending that usually follow are considered negative news for bonds and mortgage rates. Tomorrows report is expected to show a slight decline to this months preliminary reading of 97.7. A higher reading would be considered bad news for bonds and mortgage pricing while a large decline should help boost bond prices and lead to a slight improvement in rates.
©Mortgage Commentary 2017