Weekly Mortgage Commentary-February 24, 2014

This week brings us the release of five economic reports to be concerned with in addition to testimony from Fed Chairman Yellen and two potentially relevant Treasury auctions. None of the reports can be considered key or highly important to the markets, but a couple of them certainly carry enough significance to affect mortgage pricing. There is something scheduled four of the five days that can move rates, with Monday being the sole empty day of the week.

 

The first piece of data is February’s Consumer Confidence Index (CCI) at 10:00 AM ET Tuesday morning. This Conference Board index measures consumer confidence in their personal financial situations, giving us a measurement of consumer willingness to spend. If consumers are feeling good about their own financial and employment situations, they are more apt to make large purchases in the near future. Since consumer spending makes up over two-thirds of the economy, related data is considered important in terms of gauging economic activity. It is expected to show little change in confidence from the 80.7 reading in January to 80.8 this month. A lower reading would be considered good news for bonds and mortgage rates since it would indicate consumers are less likely to make a large purchase in the near future.

January’s New Home Sales report will be posted at 10:00 AM ET Wednesday morning. This is the least important report of the week, and is the sister report to last week’s Existing Home Sales data. They measure housing sector strength and mortgage credit demand, but usually do not have a significant impact on bond trading or mortgage rates unless they show significant surprises. Wednesday’s report is expected to show a decline in sales of newly constructed homes, hinting at weakness in the new home portion of the housing sector. Ideally, the bond market would prefer to see noticeable housing sector weakness because it makes broader economic growth more difficult and bonds tend to thrive during weaker economic conditions.

January’s Durable Goods Orders data will be released at 8:30 AM ET Thursday morning. This report gives us an important measurement of manufacturing sector strength by tracking orders at U.S. factories for items expected to last three or more years. Products such as electronics, refrigerators, airplanes and autos are examples of these big-ticket items. A larger decline than the 1.1% that is expected would be good news for the bond market and mortgage rates as it would point towards manufacturing sector weakness. This data is known to be quite volatile from month-to-month, so large swings are fairly normal. A small variance from forecasts would not cause much concern or joy in the markets.

Fed Chairman Yellen will deliver day two of the Fed’s semi-annual testimony on the status of the economy and monetary policy late Thursday morning. She will be speaking to the Senate Banking Committee, which was postponed from its originally scheduled date two weeks ago due to weather. Day one in front of the House Financial Services Committee was completed. Since the prepared statement by Chairman Yellen is expected to mirror her previous appearance, any noticeable reaction in the financial or mortgage markets will likely come as a result of a response during the Q&A portion of the proceeding. She will appear at 10:00 AM ET Thursday, so any reaction will probably come during late morning trading.

Friday has the remaining two relevant pieces of economic data. The first of two revisions to the 4th Quarter GDP reading is scheduled for release at 8:30 AM ET Friday morning. The GDP is considered the benchmark reading of economic growth or contraction because it is the total sum of all goods and services produced in the U.S. Analysts’ forecasts currently call for an annual rate of growth of 2.6%, down from the initial estimate of 3.2% that was posted last month. It will be interesting to see where this figure falls and what its impact on the markets will be. Generally speaking, higher levels of activity are bad news for the bond market, while a downward revision would be good news for bonds and could lead to improvements in mortgage pricing Friday.

The University of Michigan’s revision to their Index of Consumer Sentiment for February will close out the week’s calendar just before 10:00 AM ET Friday. Current forecasts show this index rising slightly from its preliminary estimate of 81.2. This index is fairly important because it helps us measure consumer confidence that translates into consumer willingness to spend, but is not considered to be a major market mover. This means it will probably not have a significant impact on mortgage rates, especially with other important data being released Friday morning.

In addition to this week’s economic reports, there are two relatively important Treasury auctions that may also influence bond trading enough to affect mortgage rates. There will be an auction of 5-year Notes Wednesday and 7-year Notes on Thursday. Neither of these sales will directly impact mortgage pricing, but they can influence general bond market sentiment. If the sales go poorly, we could see broader selling in the bond market that leads to upward revisions to mortgage rates. However, sales with higher levels of investor demand usually make bonds more attractive to investors and brings additional funds into the bond market. The buying of bonds that follows usually translates into lower mortgage rates.

Overall, Thursday is the best candidate for most active day of the week in terms of mortgage rate movement with the Durable Goods report, Chairman Yellen’s congressional appearance and a Treasury auction taking place. Monday is the only day with nothing of importance set, so we can label it the least important day. I suspect it will be a fairly active week for mortgage rates, but not a significantly volatile week unless something unexpected happens. Still, it would be prudent to maintain contact with your mortgage professional if still floating an interest rate and closing in the near future.

Weekly Mortgage Commentary-February 10, 2014

This week brings us the release of three pieces of monthly economic data that is relevant to mortgage rates in addition to two Treasury auctions and semi-annual Fed testimony. All of the economic data is set for release the latter part of the week while the other events will take place during the middle days. One of the economic reports is considered highly important to the markets, but the others are not likely to be market movers. Even with a lack of factual data the first half of the week though, we have other events that are likely to cause a fair amount of volatility in the markets and mortgage rates.

 

There is nothing of concern due Monday, leaving bond trading to be driven by the stock markets. If the major stock indexes move noticeably higher, we will probably see 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 yields and rates lower. On the other hand, stock selling could drive yields lower Monday, leading to a downward move in rates.

Newly appointed Fed Chairman Yellen will deliver the Fed’s semi-annual testimony on the status of the economy late Tuesday and Thursday mornings. She will be speaking to the House Financial Services Committee Tuesday morning and the Senate Banking Committee Thursday. Market participants will watch her words very closely. The Fed is required to deliver this testimony twice a year, which is considered to be of extreme importance to the financial markets. We almost always see the markets move as a result of what is said during this testimony. Look for her to address our employment situation, inflation, global financial issues and possibly the Fed’s tapering of QE3 and their impact on the overall economy. Her testimony begins at 10:00 AM ET with a prepared statement which is then followed by Q & A with committee members. Her prepared words are expected to be released at 8:30 AM Tuesday, so we could see a reaction early Tuesday morning. I am expecting to see the markets fluctuate Tuesday morning, possibly affecting mortgage rates also. The first day of testimony usually causes the most volatility because the prepared statement made by the Chairman on the second day often differs little from that of the first day.

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 of the two as it will give us a better 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.

This week’s first release is one of the more important ones we get each month. The Commerce Department will post January’s Retail Sales data early Thursday morning. This report is very important to the financial markets because it measures consumer spending. Since consumer spending makes up over two-thirds of the U.S. economy, any related data is watched quite closely. If Thursday’s report reveals weaker than expected retail-level sales, the bond market should thrive and mortgage rates will fall since it would be a sign that the economy is not as strong as many had thought. However, a stronger reading could lead to higher mortgage rates Thursday. Analysts are currently expecting to see no change from December’s level of spending.

Friday has the remaining two reports scheduled. January’s Industrial Production data will be released mid-morning Friday. It gives us a measurement of manufacturing sector strength by tracking output at U.S. factories, mines and utilities and can have a moderate impact on the financial markets. Analysts are expecting to see a 0.3% increase in production from December to January. A decline in output would be good news and should push bond prices higher, lowering mortgage rates Friday.
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 also 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 80.2, down from January’s final reading of 81.2. That would indicate consumers were a little less optimistic about their own financial situations than last month and are less likely to make large a purchase in the near future. Since consumer spending makes up over two-thirds of the U.S. economy, this would be considered slightly favorable news for bonds and mortgage pricing.

Overall, Tuesday or Thursday are likely to be the most important days for mortgage rates this week. The calmest will probably be Monday with it being the only day without something of relevance scheduled. The afternoon auctions and late morning starting times for the Fed testimony means there is a good likelihood of seeing intraday revisions to mortgage rates multiple days as the markets react to those events. Therefore, it would be a good idea to maintain contact with your mortgage professional if still floating an interest rate and closing in the near future.