Wednesday’s bond market has opened well in negative territory as yesterday’s afternoon sell-off extends into today’s trading. With no relevant economic news scheduled for release today, this isn’t a complete surprise. On the other hand, what is interesting is a lack of a follow-up rally in stocks this morning. With the Dow up only 18 points and the Nasdaq up 2 points, it appears that yesterday’s events are no longer fueling stock buying. The Dow and Nasdaq both closed at their highs of the day yesterday, which would normally signal a follow-up rally this morning if the rally was likely to continue. The indexes are in positive ground, but I believe that we will see them slip below this morning’s levels fairly quickly.
The other side of this argument is the fact that bonds are still moving lower, extending yesterday’s sell-off. The benchmark 10-year Treasury Note is currently down 29/32, which will likely push this morning’s mortgage rates higher by another .375 of a discount point on top of yesterday’s afternoon revision. Overall, we have lost a little more than .125 of a percent in rate since yesterday morning. With bonds still moving lower, we may see still another upward revision later today. As it appears that stocks and bonds are trading independently of each other today, we cannot rely on a possible stock reversal to erase today’s bond losses and mortgage rates increases. In other words, we will be paying less attention to stock movement to gauge bond and mortgage rate direction, at least for the next day or so.
There is no relevant economic data scheduled for release today. We do have the 30-year Bond auction taking place today, with results being posted at 1:00 PM ET. A strong sale could help alleviate some pressure that we are seeing in bonds today, but there is little possibility of moving into positive ground and erasing today’s increase in mortgage pricing. At the very least, a strong sale could help prevent an intra-day increase to rates this afternoon.
Tomorrow brings us the release of one of the key inflation indexes we see each month. The Labor Department will post February’s Producer Price Index (PPI) at 8:30 AM ET tomorrow morning. This important index measures inflationary pressures at the producer level of the economy. There are two portions of the index- the overall reading and the core data. The core data is more important and watched more closely because it excludes more volatile food and energy (including gasoline) prices. If the index shows a large increase, inflation concerns will rise, making long-term investments such as mortgage-related bonds less attractive to investors. This would lead to another increase in mortgage pricing. Current forecasts are calling for a 0.5% increase in the overall reading and a 0.2% increase in the core data. Since the Fed has already told us inflation does not seem to be a concern, slightly smaller increase will likely have little impact on tomorrow’s trading. Much weaker than expected readings could cause an improvement, but it will probably take a large variance from forecasts to see a sizable improvement in rates.
Also tomorrow morning, the Labor Department will post their weekly update of unemployment figures. They are expected to announce that 355,000 new claims for unemployment benefits were filed last week, down a little from the previous week’s 362,000. A large increase would be favorable for bonds and mortgage rates, but I suspect the data will not heavily influence the markets or mortgage pricing.