This week brings us the release of only three pieces of monthly economic data that are likely to affect mortgage rates in addition to a couple of Treasury auctions. Two of the reports are important inflation readings, so despite the small number of releases, we still could see mortgage pricing move noticeably this week.
The first piece of economic data is April's Producer Price Index (PPI) at 8:30 AM ET Wednesday. It helps us track inflationary pressures at the producer level of the economy. If this report reveals weaker than expected readings, indicating inflation is not a concern in the manufacturing sector, we should see the bond market improve. The overall index is expected to rise 0.2%, while the core data that excludes more volatile food and energy prices has been forecasted to rise 0.2%. A decline in the core data would be ideal for mortgage shoppers because inflation is the number one nemesis for long-term securities such as mortgage-related bonds. As inflation rises, longer-term securities become less appealing to investors since inflation erodes the value of their future fixed interest payments. That is one of the reasons why the bond market tends to thrive in weaker economic conditions with low levels of inflation.
The Treasury will hold a 10-year Note auction Wednesday and a 30-year Bond sale Thursday. Results of the auctions will be posted at 1:00 PM ET each day. If they are met with a strong demand from investors, we could see bond prices rise enough during afternoon trading to cause downward revisions to mortgage rates. However, lackluster bidding in the sales, meaning longer-term securities are losing their appeal, could lead to higher mortgage pricing those afternoons.
April's Consumer Price Index (CPI) will be posted early Thursday morning. This is the sister report to the PPI, but measures inflationary pressures at the more important consumer level of the economy. These results will be watched closely and could lead to significant volatility in the bond market and mortgage pricing if they show any significant surprises. Current forecasts are calling for a 0.3% increase in the overall index and a 0.2% rise in the core data reading. This data can also affect the Fed's timeline for raising key short-term interest rates and will also help dictate mortgage rate direction.
May's preliminary reading to the University of Michigan's Index of Consumer Sentiment will close out the week's calendar at 10:00 AM ET Friday. This index measures consumer willingness to spend, which relates to consumer spending. If consumers are more confident in their own financial situations, they are more apt to make large purchases in the near future. This report usually has a moderate impact on the financial markets though, because it is not exactly factual data. It is expected to show a reading of 98.0, which would be a decline from April's final reading of 98.0, indicating consumers are less confident than last month. If it shows a large decline in consumer confidence, bond prices could rise and mortgage rates would move slightly lower because waning confidence means consumers are less apt to make a large purchase in the near future.
Overall, Thursday is the best candidate for most important day of the week due to the CPI release, but Wednesday also may be active with the PPI and the 10-year Note auction taking place. The calmest day is likely to be Tuesday. We should see the most movement in mortgage rates mid-week unless something unexpected happens.