Thursday, May 28th
Thursday’s bond market has opened flat despite a slew of headlines and economic news. Stocks are showing early losses, pushing the Dow lower by 173 points and the Nasdaq down 22 points. The bond market is currently unchanged from yesterday’s close (4.46%), but we still should see an increase in this morning’s mortgage rates of approximately .125 of a discount point.
0/32
Bonds
30 yr - 4.48%
173
Dow
50,470
22
NASDAQ
26,652
Trailing 90 Days - National Average
Low
Unknown
None of yesterday’s afternoon and evening events had a noticeable impact on rates. The 5-year Treasury Note auction results indicated investor demand for the securities was in line with other recent sales. We can expect a similar interest in today’s 7-year Note auction. Results of it will be posted at 1:00 PM ET, but it will take an overly strong demand to cause an improvement in rates this afternoon or an extremely weak sale to fuel an intraday increase. The late Fed speeches also failed to move the markets.
Medium
Negative
We did get news from the Middle East that both Iran and the U.S. exchanged strikes while still saying the ceasefire remains in place. That news caused oil prices to jump, leading to overnight bond losses. Fortunately, this morning’s economic data was good enough per se to allow bonds to recover that weakness. It is unlikely that the benchmark 10-year Treasury Note yield will remain at its current level throughout the rest of the day. We are expecting to see it move one direction or another before the end of the day based on all the news this morning and current trading activity.
High
Neutral
The most important of today’s batch of economic data was April's Personal Income and Outlays report at 8:30 AM ET. In this report are the Personal Consumption Expenditure (PCE) indexes that the Fed relies heavily on when making monetary policy decisions. They showed an increase in April’s inflation, but at a bit slower pace than was expected. The good news came in the overall April PCE that rose 0.4% when forecasts had it up 0.5%. Also, the more important core data that excludes volatile food and energy costs was up 0.2%, falling short of the 0.3% that was predicted. The bad numbers were the annual readings that were at a 3.8% and 3.3% pace respectively. While the year-over-year numbers matched forecasts, they were stronger rates than March’s readings, meaning inflation is worsening on an annual basis. Therefore, we are labeling the monthly readings good news for mortgage pricing and the annual numbers as slightly negative.
Medium
Positive
The title readings of the report gave us mixed results. They showed income was unchanged from March, which was well below the 0.4% that was expected. This is good news because slowing income growth means consumers have less money to spend, restricting economic activity. Unfortunately, despite the flat earnings, spending was up 0.5% for the month. This is likely a result of higher prices paid than strong consumption demand.
Medium
Positive
Also early this morning was the release of the revised Gross Domestic Product (GDP) reading for the 1st Quarter of the year. It showed the economy grew at a slower pace than previously thought with a downward revision that puts the growth rate at 1.6% instead of the initial estimate of 2.0%. A secondary reading that is related to inflation was also revised lower. Both of these fall under the good news column because bonds become more appealing to investors during times of slower economic growth and softer inflation periods.
High
Negative
April's Durable Goods Orders report that was also released at 8:30 AM ET this morning gave us a sign of manufacturing sector strength. The 7.9% rise in new orders for products such as airplanes, appliances, and electronics was stronger than the 3.0% increase that was expected. Another reading in the report that excludes more costly and volatile airplane and transportation-related orders also rose more than expected. This data is known to be volatile from month to month, so the size of the variance isn’t nearly as meaningful as it would be in most of the other regularly released reports. That said, the difference was enough to label today’s release as bad news for mortgage rates.
Low
Positive
Finally, the 10:00 AM ET release of April's New Homes Sales report revealed a 6.2% drop in sales of newly constructed homes. This was a larger decline than expected and signals weakness in the housing sector. We can label this data good news for rates since it is a sign of slower economic activity, but it is worth noting that this report covers such a small portion of all home sales in the U.S. Therefore, it does not carry much significance in the markets and had no impact on this morning’s mortgage pricing.
---
Unknown
There is no relevant economic data set for tomorrow. We are expecting news about the Iran conflict, oil prices and possibly a Fed speech or two to drive tomorrow’s bond trading. It is possible that we have a fairly quiet day for rates, but that will depend on what non-economic headlines cross the wires.
If I were considering financing/refinancing a home, I would.... Lock if my closing was taking place within 7 days... Lock if my closing was taking place between 8 and 20 days... Float if my closing was taking place between 21 and 60 days... Float if my closing was taking place over 60 days from now... This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.