This week brings us the release of only two pieces of monthly economic data that are relevant to mortgage rates in addition to two Treasury auctions and semi-annual congressional Fed testimony. One of the economic reports is considered highly important to the markets, but the other is not likely to be a market mover. The Fed testimony has a decent probability of causing volatility in the markets and the auctions can lead to intraday changes to rates also.
Nothing of concern is due tomorrow or Tuesday, leaving bond trading to be driven by the stock markets and overseas financial news the first part of the week. If the major stock indexes move higher, we will probably see funds move away from bonds and into stocks. This would lead to higher mortgage rates as bond prices and yields move in opposite directions. Mortgage rates tend to follow bond yields, so we prefer to see bond prices go up, pushing yields and rates lower.
Fed Chair Janet Yellen will deliver the Fed's semi-annual testimony on the status of the economy late Wednesday and Thursday mornings. She will be speaking to the House Financial Services Committee Wednesday morning and the Senate Banking Committee Thursday. Market participants will watch her words very closely. The Fed is required to deliver this testimony twice a year, which is considered to be of extreme importance to the financial markets. We almost always see the markets move as a result of what is said during this testimony. Look for her to address our employment situation, inflation stock volatility and global financial issues and their impact on the overall economy. Her testimony begins at 10:00 AM ET with a prepared statement which is then followed by Q & A with committee members. Her prepared words are expected to be released prior to her appearance, so we could see a reaction early Wednesday morning. I am expecting to see the markets fluctuate Wednesday morning, possibly affecting mortgage rates also. The first day of testimony usually causes the most volatility because the prepared statement made by the Chairman on the second day often differs little from that of the first day.
The two important Treasury auctions come 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 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 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 afternoon revisions to mortgage rates.
Both of this week's monthly economic reports will be released Friday morning. The first is one of the more important ones we get each month. The Commerce Department will post January's Retail Sales data early Friday morning. This report is very important to the financial markets because it measures consumer spending. Since consumer spending makes up over two-thirds of the U.S. economy, any related data is watched quite closely. If Friday's report reveals weaker than expected retail-level sales, the bond market should thrive and mortgage rates will fall since it would be a sign that the economy is not as strong as many had thought. However, a stronger reading than the 0.2% increase that is expected could lead to higher mortgage rates Friday.
February's preliminary reading to the University of Michigan's Index of Consumer Sentiment will be released late Friday morning. This index measures consumer willingness to spend and usually has a moderate impact on the financial markets. If it shows an increase in consumer confidence, the stock markets may move higher and bond prices could fall. It is currently expected to come in at 92.7, down from January's final reading of 93.3. That would indicate consumers were a little less optimistic about their own financial situations than last month and are less likely to make large a purchase in the near future. Since consumer spending makes up over two-thirds of the U.S. economy, this would be considered slightly positive news for bonds and mortgage pricing. Ideally, we would prefer to see a large decline in confidence.
Overall, expect Wednesday to be the key day of the week due to the congressional Fed appearance. Friday could be active for mortgage rates also due to the sales report. Stocks are probably going to also influence bond trading and mortgage pricing again this week.