This week brings us the release of only two pieces of monthly economic data that are likely to affect mortgage rates in addition to a couple of Treasury auctions. Both 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 events will come mid-week when 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 Producer Price Index (PPI) is the first economic data, scheduled for release at 8:30 AM ET Thursday. 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 other monthly report is April's Consumer Price Index (CPI) early Friday 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 0.4% 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.
Overall, Friday is the best candidate for most important day of the week due to the CPI release although Thursday may be active also. Besides the PPI, there is a speaking engagement by Fed Chairman Powell Thursday morning also that may influence trading. The calmest day will likely be Tuesday. There is a decent chance of seeing the largest move in rates the latter half of the week unless something unexpected takes place early in the week.