This week brings us the release of only three pieces of monthly economic data that may influence mortgage rates in addition to a couple of Treasury auctions. It starts off light with nothing set for release tomorrow that is expected to affect rates. That said, we still may see movement as the markets react negatively to weekend Omicron news.
Activities start Tuesday morning with revised 3rd Quarter Productivity numbers at 8:30 AM ET. Higher levels of productivity are thought to allow the economy to expand without inflationary pressures rising. This is good news for the bond market because economic growth itself isn't necessarily bad for bonds. It is the conditions surrounding an expanding economy, such as rising inflation, that hurt bond prices and mortgage rates. Current forecasts are calling for a decline of 4.9% in productivity, nearly matching the initial estimate. The stronger the reading, the better the news for the bond market. This report generally does not have a noticeable impact on mortgage pricing though, so it will take a wide variance to draw much attention.
Wednesday and Thursday both have no relevant monthly economic data scheduled, but they do have Treasury auctions scheduled that often affect rates during afternoon trading. 10-year Treasury Notes will be sold Wednesday, followed by 30-year Bonds Thursday. Results of both will be posted at 1:00 PM ET each day, making them early afternoon events. If they are met with a strong demand from investors, particularly international buyers, we should see strength in the broader bond market and improvements to mortgage pricing during afternoon hours those days. On the other hand, a weak interest in the auctions could lead to upward revisions to rates.
Friday has the most important report of the week with the release of November's Consumer Price Index (CPI) at 8:30 AM ET. It tracks inflationary pressures at the consumer level of the economy and is expected to show a 0.6% rise in the overall reading and a 0.5% increase in the more important core data. The core reading excludes more volatile food and energy costs, leaving us more stable information. This data is one of the most watched inflation indexes, which is extremely important to long-term securities such as mortgage related bonds. Rising inflation erodes the value of a bond's future fixed interest payments, making them less appealing to investors. That translates into falling bond prices and rising mortgage rates. Therefore, weaker than expected readings would be favorable for the bond market and mortgage shoppers.
The final report of the week is the release of December's preliminary reading to the University of Michigan's Index of Consumer Sentiment late Friday morning. This index measures consumer willingness to spend and can usually have enough of an impact on the financial markets to change mortgage rates slightly if it shows a sizable miss from forecasts. Consumer sentiment or confidence is tracked because the more comfortable consumers are about their own financial situations, the more likely they are to make a large purchase in the near future. Since consumer spending makes up such a large part of our economy, any related data is watched closely. Friday's release is expected to show a reading of 67.9, up slightly from last month's final reading of 67.4. A large decline in confidence would be favorable news for rates.
Overall, Friday is the most important day for rates due to the importance the CPI carries. However, as we have seen several times over the past two weeks, the markets can get very active without notice. Therefore, please proceed cautiously if still floating an interest rate and closing in the near future.