Tuesday’s bond market has opened down slightly following stronger housing data and early stock gains. The Dow is currently up 207 points and the Nasdaq is up 49 points. The bond market is currently down 3/32 (1.31%), which should keep this morning’s mortgage rates close to Monday’s early pricing.
This week’s economic calendar started at 8:30 AM ET this morning when August's Housing Starts report was posted. It showed that new home groundbreakings rose 3.9% last month, exceeding expectations. A secondary reading that tracks newly issued permits, giving an indication of future groundbreakings, also rose much more than predicted (up 6.0%). Both readings can be considered bad news for bonds and mortgage rates, but this report doesn’t carry a high level of significance to traders. Accordingly, we have seen a minor reaction to the data.
We also have the 20-year Treasury bond auction taking place today. Results will be posted at 1:00 PM ET, making this an early afternoon event. A strong demand for the securities could help improve bonds and lead to slightly lower mortgage rates before closing today. However, if investor interest in the sale was lackluster, we could see bonds weaken and mortgage rates move higher before the end of the day.
Tomorrow has several events that we will be watching, starting with August's Existing Home Sales report at 10:00 AM ET. The National Association of Realtors is expected to announce that the number of home resales in the U.S. slipped last month, indicating weakness in the housing sector. A softening housing sector makes broader economic growth more difficult, making bonds more appealing to investors. Therefore, bond traders would prefer to see a larger decline in sales. Since this report carries only a medium level of importance, it will take a noticeable variance from forecasts for it to cause a noticeable change rates.
The big events of the week will come during afternoon trading tomorrow. The first item on the afternoon agenda is the FOMC meeting adjournment at 2:00 PM ET. There is little chance of the Fed changing key short-term interest rates this week. What will be of interest is verbiage in the post-meeting statement regarding inflation, tapering of their monthly bond purchases and when the Fed may start raising key short-term interest rates.
Also at 2:00 PM ET tomorrow, the Fed will release their revised economic projections for the U.S. The markets are interested in whether Chairman Powell and friends think the economy is rebounding quicker or slower than previously thought and how long they expect to keep key rates at their current level of near zero percent. Key readings the markets will be looking for are the unemployment rate, inflation and overall GDP growth. Downward revisions by the Fed will be good news for bonds and mortgage pricing since it would mean the economy is not as strong as they expected.
The adjournment, post-meeting statement and economic projections will be followed by a press conference with Chairman Powell at 2:30 PM ET. Analysts and market traders will be watching his words carefully.