This week brings us the release of only three economic reports for the markets to digest over four trading days, two of which are considered important data. In addition to that data, there are two Treasury auctions that certainly have the potential to affect mortgage rates. The bond market will be closed tomorrow in observance of the Columbus Day holiday as will most banks, so there will not be an update to this report tomorrow. The stock markets will be open for trading though. This means that the lenders that are open for business will likely not be issuing new rates tomorrow, opting to use Friday's pricing or not accepting new rate locks. The bond market will reopen for regular trading Tuesday morning.
The first release of the week is September's Producer Price Index (PPI) early Wednesday morning. This index measures inflationary pressures at the manufacturing level of the economy and is considered to be highly important to the bond market. Analysts are expecting to see a 0.2% rise in the overall index and an increase of 0.2% in the more important core data reading. A larger than expected increase in the core reading would further fuel inflation concerns, pushing bond prices lower and mortgage rates higher. Inflation is the number one nemesis of the bond market because it erodes the value of a bond's future fixed interest payments. Unexpected growth in inflation also causes the Fed rate to be more aggressive with rate hikes. When inflation is a threat, even down the road, bonds sell for discounted prices that push their yields higher. And since mortgage rates tend to follow bond yields, this leads to higher rates for mortgage borrowers.
Wednesday also has the first of this week's two important Treasury auctions. The sale of 10-year Notes will be held Wednesday while 30-year Bonds will be sold Thursday. We often see some weakness in bonds ahead of the sales as the firms participating prepare for them. However, as long as the auctions are met with decent demand from investors, the firms usually buy them back. This tends to help recover any presale losses. But, if the sales are met with a lackluster interest from investors- particularly international buyers, the bond market may move lower after the results are posted and mortgage rates could move higher. Those results will be announced at 1:00 PM each sale day, so any reaction will come during early afternoon trading.
Next up is September's Consumer Price Index (CPI) at 8:30 AM ET Thursday. It is the sister report to the PPI but tracks inflationary pressures at the very important consumer level of the economy. Analysts are expecting to see a 0.2% increase in the overall index and an increase of 0.2% in the core data also. A larger than expected increase in the core reading would be bad news, likely pushing bond prices lower and mortgage rates higher.
The last release of the week will be posted by the University of Michigan late Friday morning. Their Index of Consumer Sentiment for October will give us an indication of consumer confidence, which helps us measure consumer willingness to spend. If consumer confidence in their own financial situations are rising, they are more apt to make large purchases. But, if they are growing more concerned about their job security or finances, they probably will delay making that large purchase. This influences future consumer spending data and can impact the financial markets. It is expected to show a reading of 100.0, meaning confidence was nearly unchanged from September's level of 100.1. A decline would be considered favorable news for bonds and mortgage rates because waning consumer spending usually translates into slower economic growth.
Overall, it appears Wednesday or Thursday are the best candidates for most important day of the week with an important inflation reading each day. Tuesday could be the calmest but following a three-day weekend in bonds we still may see some movement in rates. Please maintain contact with your mortgage professional if still floating an interest rate because as we saw last week, the markets can get extremely volatile at any time.