Tuesday’s bond market has opened down slightly even though this morning’s economic data gave us favorable news. Stocks are mixed with the Dow down 137 points and the Nasdaq up 15 points. The bond market is currently down 1/32 (4.28%), but losses late yesterday are likely to cause an increase of approximately .125 of a discount point in this morning’s mortgage rates.
Yesterday’s 5-year Treasury Note auction drew mixed demand from investors. Some benchmarks showed an average or slightly better interest for the securities while others pointed to a soft sale. The bond market had already weakened before results were announced at 1:00 PM ET, but they did lose a little more ground shortly after. Accordingly, we can attribute some of yesterday’s afternoon weakness and upward change in rates to the auction. Those results prevent us from being overly optimistic about today’s 7-year Note sale. We will get results of today’s auction at 1:00 PM ET also, making this an early afternoon event for mortgage rates. A strong demand from investors could lead to bond gains and lower mortgage pricing later today.
January's Durable Goods Orders report was posted at 8:30 AM ET this morning. It indicated new orders for big-ticket items such as airplanes, appliances and electronics fell 6.1% last month when a 4.4% decline was expected. Also in the good news column was a secondary reading that excludes more volatile and costly transportation-related orders (airplanes). It fell 0.3% when analysts had predicted a 0.3% rise. These numbers are a sign of weakness in the manufacturing sector, making the data good news for bonds and mortgage rates.
Also released this morning but at 10:00 AM ET was February's Consumer Confidence Index (CCI). The Conference Board announced a reading of 106.7 that was well below forecasts of 114.6. A downward revision to January’s reading is softening the impact January’s number is having on the markets this morning. Still, the decline means surveyed consumers were not nearly as confident in their own financial situations and are less likely to spend. Because consumer spending makes up over two-thirds of the U.S. economy and bonds tend to thrive in weaker economic conditions, we can consider the data good news for rates.
Tomorrow brings us the first revision to the 4th Quarter Gross Domestic Product (GDP) reading at 8:30 AM ET. The GDP is considered to be the benchmark indicator of economic growth that comes in a preliminary version followed by two revisions one month apart. This is the second version from last quarter and is expected to show the economy grew at a 3.2% annual rate over the last three months of the year, down slightly from the initial estimate of 3.3%. Because bonds are more attractive to investors during times of economic weakness, the bond market and mortgage rates should improve if there is a noticeable downward revision.