This week has only three economic reports that are relevant to the bond market and mortgage pricing. Most of what is being released is considered to be highly important and all of it is set for one day. In addition to the data, there are two Treasury auctions that we need to watch. There is nothing of importance scheduled for release tomorrow or Tuesday, so look for stock movement to help drive bond trading early in the week. There are Treasury auctions scheduled several days this week, but the two that are the most likely to affect mortgage rates will be held 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 result in upward revisions to mortgage rates. Results will be posted at 1:00 PM ET each day, so any reaction will come during early afternoon trading. Friday has all three of this week’s monthly reports that have the potential to affect mortgage rates. The first is December's Retail Sales data at 8:30 AM ET Friday. This Commerce Department report measures consumer spending by tracking sales at U.S. retail level establishments. Since consumer spending makes up over two-thirds of the U.S. economy, any related data is watched closely. Rising consumer sales fuels expectations for broader economic growth that makes long-term bonds less attractive to investors. Current forecasts are calling for a 0.7% increase in December's sales. A smaller increase would be good news for bonds and mortgage rates because it would hint at weaker than thought economic growth. The second report of the day is December's Producer Price Index (PPI) at 8:30 AM ET. The PPI is important to the markets and mortgage rates because it measures inflationary pressures at the producer level of the economy. Analysts are expecting to see a 0.3% rise in the overall reading and a 0.1% increase in the more important core reading that excludes volatile food and energy prices. A larger than expected increase in the core reading could mean higher mortgage rates Friday since strengthening inflation is bad news for the bond market. It erodes the value of a bond's future fixed interest payments, making them less appealing to investors. Accordingly, they are sold at a discount to offset the drop in value, which drives their yields higher. And since mortgage rates follow bond yields, rising inflation usually translates into higher interest rates for borrowers. The final report of the week is January's preliminary reading to the University of Michigan's Index of Consumer Sentiment. This index measures consumer willingness to spend and can usually have enough of an impact on the financial markets to slightly change mortgage rates. If consumers feel better about their own financial and employment situations, they are more apt to make a large purchase in the near future, fueling economic growth. Good news would be a reading weaker than December's 98.2 that means consumers are less likely to make a large purchase in the immediate future. Overall, Friday is an easy choice for most important day of the week, but Wednesday may also be pretty active. Don’t let the low number of economic reports fool you into believing we won’t see movement in rates this week. Stocks are at record levels and could be moving higher. Traditionally, stock strength translates into bond weakness and higher mortgage rates. Therefore, we will be focusing on the major indexes for bond direction the next several days. It would be prudent to maintain contact with your mortgage professional if still floating an interest rate and closing in the near future.
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