This week brings us the release of only two monthly economic reports in addition to a couple of Treasury auctions and a speech from Fed Chairman Powell midweek. It starts off light with nothing scheduled tomorrow or Tuesday that are likely to affect rates.
The calendar begins early Wednesday morning with the release of January's Consumer Price Index (CPI). This index measures inflationary pressures at the consumer level of the economy. Its results can have a significant impact on the financial markets, especially on long-term securities such as mortgage-related bonds. Therefore, all related data is watched very closely. Current inflation readings will influence the Fed's future decisions regarding key short-term rates. The report is expected to show a 0.4% increase in the overall index and a 0.2% rise in the more important core data that excludes volatile food and energy prices. If we see weaker than expected readings, bond prices should rise and mortgage rates will likely fall.
Next up will be the first of two important Treasury auctions set for this week. 10-year Treasury Notes will be sold Wednesday, followed by 30-year Bonds Thursday. Wednesday's auction is the more important of the two as it will give us an 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 early afternoon trading those days. 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 afternoon revisions to mortgage rates.
Wednesday afternoon also has a speaking engagement involving Fed Chairman Powell at 2:00 PM ET. He will be speaking about the labor market at the Economic Club of New York. This is a hot topic, so we can expect traders to pay close attention to his words. If he portrays strong concern about the employment sector, we should see bonds rally during afternoon trading, possible causing an intraday improvement to mortgage rates.
The final report of the week will be February's preliminary reading to the University of Michigan's Index of Consumer Sentiment late Friday morning. This index tracks consumer willingness to spend and usually has a moderate impact on the financial markets because consumer spending is such a large part of the U.S. economy. If it shows an increase in consumer confidence, the stock markets may move higher and bond prices could fall. It is currently expected to show a 80.8 reading, up from January's final reading of 79.0. That would indicate consumers were a little more optimistic about their own financial situations than last month, meaning they are more likely to make a large purchase in the near future that fuels economic growth. Good news for rates would be a large decline in this reading.
Overall, Wednesday is the most important day of the week for rates with morning and afternoon events scheduled that can move them. The calmest day may be Tuesday. If wondering, the impeachment trial that is expected to start this week shouldn’t have an impact on the bond market or mortgage pricing. However, the other pending issue in Washington D.C., the next stimulus package, certainly can heavily influence the markets and mortgage rates. This means we will be watching for bits of information regarding the size and details of the package being put together. Despite the lack of a high number of economic releases, there is enough scheduled to make this another active week for the markets. It would be prudent to watch them closely if still floating an interest rate and closing in the near future.