This week has little scheduled in terms of economic data that is expected to drive bond trading and mortgage rates. There are only two relevant monthly or quarterly economic reports on the calendar and both are considered to be fairly insignificant. We do, however, have two Treasury auctions that can potentially affect rates in addition to a couple of congressional appearances by Fed Chairman Yellen the middle part of the week.
Friday's Employment report gave us some unfavorable results that initially led to weakness in bonds, but that was short-lived as bonds moved into positive ground during late morning trading. That was quite surprising because the data indicated a much stronger than thought employment sector that should have fueled bond selling and stock buying. There is no clear reason why the data was shrugged off. It will be interesting to see if we get a correction in tomorrow’s session or if indeed the data was not a concern to bond traders. The strength we saw Friday and pressure building again in Ukraine could help keep bond yields lower, preventing a sizable upward move in mortgage rates in the immediate future.
This week’s two pieces of monthly or quarterly economic data will come Tuesday and Wednesday, but neither is considered to be highly important. March's Goods and Services Trade Balance report will be released early Tuesday morning. This report gives us the size of the U.S. trade deficit but likely will not have much of an impact on the bond market or mortgage pricing. It is expected to show a $42.5 billion trade deficit, but likely will have little influence on Tuesday's mortgage rates unless it shows a significant variance from forecasts.
The second will be from the Labor Department, who will release its 1st Quarter Productivity and Costs data early Wednesday morning. This information helps us measure employee productivity in the workplace. High levels of productivity help allow low-inflationary economic growth. If employee productivity is rapidly rising, the bond market should react favorably. However, a sizable decline could cause bond prices to drop and mortgage rates to rise slightly Wednesday morning. It is expected to show a 1.2% drop in worker productivity during the first three months of the year.
The Treasury will hold a 10-year Note sale Wednesday and a 30-year Bond sale Thursday. Results of the auctions will be posted at 1:00 PM ET each day. If they are met with a strong demand from investors, we could see bond prices rise enough during afternoon trading to cause downward revisions to mortgage rates. However, lackluster bidding in the sales, meaning longer-term securities are losing their appeal, could lead to higher mortgage pricing those afternoons.
The middle of the week also has two speaking engagements by Fed Chairman Janet Yellen. She will appear before the Joint Economic Committee Wednesday morning and the Senate Budget Committee Thursday morning. As with anytime the Fed Chairman is speaking, the media and market participants will be watching. Any surprises could lead to volatility in the markets and movement in mortgage rates.
Overall, I think we will see the most movement in mortgage rates the middle part of the week, but tomorrow’s open could be interesting also due to Friday’s confusing reaction to the key economic data. Wednesday's 10-year Treasury Note auction could cause movement in rates during afternoon hours. However, any of this week's moves will most likely be much smaller than some of last week's changes were, comparatively speaking.