Monday’s bond market has opened in negative territory following stronger than expected economic data. The stock markets are beginning the week in positive ground with the Dow up 70 points and the Nasdaq up 22 points. The bond market is currently down 4/32, but I don’t believe we will see too much of a change in this morning’s mortgage rates if comparing to Friday’s pricing.
The Commerce Department reported early this morning that retail-level sales rose 1.1% last month, slightly exceeding forecasts. A secondary reading that tracks sales with more volatile and pricey auto transactions excluded also beat forecasts by a small margin (+0.7% vs 0.5% estimate). Also worth noting was a 0.4% upward revision to February’s sales, indicating that consumer level spending was a bit stronger than thought the last two months. That by theory is bad news for the bond market and mortgage rates, although you could make an argument that the upward revision to February means the increase in March was by a smaller margin than expected. Still, the news is more stock friendly than it is bond friendly and has helps open the week with minor losses in the bond market and mortgage rates.
The rest of this holiday-shortened week brings us the release of four more economic reports that have the potential to affect mortgage rates. We also have round two of corporate earnings releases that can significantly impact the stock markets and help direct funds into or away from bonds. Strong earnings reports should fuel a stock rally that pressures bonds and leads to higher mortgage rates. On the other hand, disappointing earnings news should make bonds more attractive and lead to rate improvements.
Tomorrow also has only a single relevant economic report set for release. The Labor Department will give us March's Consumer Price Index (CPI) at 8:30 AM ET tomorrow. This index is one of the more important pieces of data the bond market gets each month. It is similar to last week's PPI but measures inflationary pressures at the consumer level of the economy. If inflation is rapidly rising, bonds become less appealing to investors, leading to bond selling and higher mortgage rates. There are two readings in the index that traders watch- the overall and the core data that excludes more volatile food and energy prices. Analysts are expecting to see a 0.1% rise in the overall readings and a 0.1% increase in the core reading. The core data is the more important reading, which ideally would show a decline in prices at the consumer level, keeping inflation concerns subdued.
The bond market will close early Thursday and will be closed Friday in observance of the Good Friday holiday. The stock markets will be closed Friday but have a full day of trading Thursday. All the markets will reopen for regular trading Monday morning. It is fairly common to see a little pressure in bonds just before a holiday as investors look to protect themselves over the long weekend, so don’t be surprised to see such activity later in the week.
Overall, the most important reports are today’s Retail Sales and tomorrow’s CPI index, but Wednesday has three releases so it may be an active day also. We need to keep a close eye on the stock markets for mortgage rate direction also. If stocks extend last week’s sell-off, we could see further gains in bonds and improvements to mortgage rates. The benchmark 10-year Treasury yield is currently 2.63%, which is well below the 2.68% we considered a resistance level. I don’t see it remaining where it is now for very long. I believe we are more likely to see it move back closer to that threshold than below 2.60% in the immediate future. Therefore, I am holding my conservative stance towards rates and recommend locking a rate if closing in the near future.