This week has five pieces of economic data for the markets to digest in addition to two potentially relevant Treasury auctions. It will be interesting to see what transpires tomorrow morning when the markets open after the long weekend. The U.S. markets were closed Friday in observance of the Good Friday holiday and the bond market was in heavy selling mode Thursday. The benchmark 10-year Treasury Note yield spiked from 2.63% at Wednesday’s close to 2.72% at Thursday’s early closing. That led to sizable increases in mortgage rates that could very well carry into trading this week, especially if we get stronger than expected results in the scheduled economic data or noticeable gains in stocks.
The week’s calendar starts late tomorrow morning when the Conference Board releases their Leading Economic Indicators (LEI) for March. This data attempts to measure economic activity over the next three to six months. This is considered to be only a moderately important report, so at best we can expect to see a slight movement in rates as a result of this data. It is expected to show a 0.8% increase from February's reading, meaning it is predicting moderate growth in economic activity over the next several months. A decline would be considered good news for the bond market and could lead to slightly lower mortgage rates.
March's Existing Homes Sales numbers from the National Association of Realtors will be posted at 10:00 AM ET Tuesday. This report gives us an indication of housing sector strength and mortgage credit demand. It is also considered to be moderately important to the markets, but can influence mortgage pricing if it shows a sizable variance from forecasts. Ideally, the bond market would like to see a drop in home resales because a soft housing sector makes broader economic growth more difficult. Analysts are expecting to see little change in sales between February and March. The larger the increase, the worse the news it is for bonds and mortgage rates.
The sister release to that report is March's New Home Sales late Wednesday morning, but it tracks a much smaller portion of all home sales than Tuesday's report does. It also gives us an indication of housing sector strength and future mortgage credit demand, however, unless it varies greatly from analysts' forecasts, I am not expecting the data to cause much movement in mortgage rates. Analysts are currently forecasting an increase in sales of newly constructed homes.
Thursday’s only relevant monthly data is March's Durable Goods Orders that will be released at 8:30 AM ET. This report gives us an indication of manufacturing sector strength by tracking orders for big-ticket items at U.S. factories. These are products that are expected to last three or more years, such as appliances, electronics and airplanes. Current forecasts are calling for an increase in new orders of 2.0%. This would be a sign of manufacturing sector strength, but this data can be quite volatile from month-to-month. Therefore, a small variance between forecasts and the actual results will not heavily influence the markets or mortgage rates. A large decline would be considered good news for bonds and mortgage pricing, while a large rise would indicate strength. A sign of solid manufacturing growth could lead to higher mortgage rates Thursday.
In addition to this week's economic reports, there are two relatively important Treasury auctions that may also influence bond trading enough to affect mortgage rates. There will be an auction of 5-year Treasury Notes Wednesday and 7-year Notes on Thursday. Neither of these sales will directly impact mortgage pricing, but they can influence general bond market sentiment. If the sales go poorly, we could see broader selling in the bond market that leads to upward revisions to mortgage rates. On the other hand, strong sales usually make government securities more attractive to investors and bring more funds into bonds. The buying of bonds that follows usually translates into lower mortgage rates. Results of the sales will be posted at 1:00 PM ET each auction day, so look for any reaction to come during afternoon hours.
The last piece of a data this week will be the University of Michigan's update to their Index of Consumer Sentiment for April just before 10:00 AM ET Friday. This report gives us an indication of consumer sentiment and their willingness to spend. Current forecasts are calling for little change from the preliminary reading of 82.6. This means that surveyed consumers were just as optimistic about their own financial situations as they were earlier this month. This data is relevant because 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. I don't expect this report to have a significant impact on bonds and mortgage pricing unless it shows a noticeable revision.
Overall, look for a fair amount of movement in the financial markets and mortgage rates this week. Of particular interest will be tomorrow morning as we see if Thursday’s selling extends into this week or if bonds rebound and recover some of those losses. The single most influential economic report will likely be Thursday’s Durable Goods, but look for a surprise in Tuesday’s housing data to cause movement in rates also. This week is another filled with corporate earnings releases, so we need to watch for stock movement to also affect bond trading and mortgage rates. I am still holding the cautious stance towards rates until the 10-year yield gets closer to 2.80%. Since mortgage rates tend to follow bond yields, I recommend at least considering locking an interest rate if still floating and closing in the near future.