This week brings us the release of only four pieces of economic data that are likely to influence mortgage rates in addition to a couple of Treasury auctions. Most of the data that is scheduled this week is considered to be highly important. It is a holiday-shortened week with only three and a half trading days for the bond market with nothing of importance set for today.
The first events of the week will be the two Treasury auctions that have a decent chance of affecting mortgage rates. There is a 10-year Treasury Note sale Tuesday and a 30-year Bond sale Wednesday. We could see some weakness in bonds today ahead of the sales as participating firms sell current holdings to prepare for them. This weakness is usually only temporary if the sales are met with a decent demand. The results of the auctions will be posted at 1:00 PM ET each day. If the demand from investors was strong, the bond market could rally during afternoon trading, leading to lower mortgage rates. If the sales were met with a poor demand, the afternoon weakness may cause upward revisions to mortgage pricing Tuesday and/or Wednesday.
March's Producer Price Index (PPI) will kick off the economic releases early Thursday morning. It will give us an important measurement of inflationary pressures at the producer level of the economy. There are two portions of the report that analysts watch- the overall reading and the core data. The core data is more important to market participants because it excludes more volatile food and energy prices. If it shows rapidly rising prices, inflation fears may hurt bond prices since it erodes the value of a bond's future fixed interest payments and causes the Fed to raise key short-term rates sooner. A good size decline in prices would be good news for the bond market and mortgage rates. Current forecasts are calling for no change in the overall reading and a 0.2% rise in the core data.
Next up is the release of the University of Michigan's Index of Consumer Sentiment late Thursday morning. This index will give us an indication of consumer confidence, which hints at consumers' willingness to spend. If confidence is rising, consumers are more apt to make large purchases. But, if they are growing more concerned of their personal financial or employment situations, they probably will delay making that purchase. This influences future consumer spending data and can have a moderate impact on the financial markets. Good news would be a sizable decline from March's 96.9 reading. Current forecasts are calling for a reading of approximately 96.3.
There are two very important reports being posted Friday, even though the financial markets will not be trading. The Commerce Department will release March's Retail Sales data at 8:30 AM ET Friday morning. This piece of data gives us a measurement of consumer spending, which is very important because consumer spending makes up over two-thirds of the U.S. economy. Forecasts are calling for a 0.1% decline in sales from February to March. If we see an increase in spending, the bond market will likely fall and mortgage rates will rise as it would indicate consumers are spending more than thought, fueling economic growth. On the other hand a larger than expected drop in sales could push bond prices higher and mortgage rates lower. However, any reaction won’t come until Monday when the markets reopen.
The final report of the week is March's Consumer Price Index (CPI), also coming at 8:30 AM ET Friday. This index is one of the more important pieces of data the bond market gets each month. It is similar to Thursday'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. As with the PPI, there are two readings in the index that traders watch- the overall and the core data. Analysts are expecting to no change in the overall readings and a 0.2% 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 is expected to close early Thursday ahead of the Good Friday holiday. The stock and bond markets will be closed all day Friday and will reopen for regular trading Monday. It is common to see some pressure in bonds as investors make moves to protect themselves over the long holiday, so don't be surprised if bonds weaken slightly early Thursday afternoon before closing. This is particularly true since there is significant data being released Friday when the markets are closed.
Overall, Thursday will be the most important day of the week even though there is more important data being posted Friday morning. Due to the holiday, the markets won’t be able to react to that data until next Monday. This leaves Thursday as the best candidate for most active day in mortgage rates. I suspect we will see the earlier part of the week be fairly calm but get more active as it progresses.