This week brings us the release of only a single piece of monthly economic data worth watching, but it is considered to be pretty important to the financial and mortgage markets. In addition to the economic report, there are two Treasury auctions scheduled that have the potential to influence mortgage rates. There is nothing relevant to rates scheduled tomorrow or Tuesday. It will be interesting to see if last week’s late volatility will carry into this week’s trading. While that was favorable for mortgage shoppers, with little scheduled the next couple days it may be difficult for bonds to extend that rally.
Starting the week’s activities will be the two Treasury auctions. Wednesday's 10-year Note auction and Thursday's 30-year Bond sale have the potential to affect rates. It is fairly common to see some weakness in bonds before these sales as investors prepare for them. If the sales are met with a decent demand from investors, indicating that interest in longer-term securities such as mortgage-related bonds is good, the earlier losses are usually recovered after the results are announced. Results of sales will be posted at 1:00 PM ET of each auction day. If demand was strong, particularly from international investors, we should see mortgage rates improve during afternoon trading those days. However, weak levels of interest could lead to broader selling in the bond market that could push mortgage rates higher.
July's Producer Price Index (PPI) will be posted at 8:30 AM ET Friday, giving us an important measurement of inflationary pressures at the producer level of the economy. There are two readings that analysts follow in this release. They are the overall index and the core data reading. The core data is the more important of the two since it excludes more volatile food and energy prices. Analysts are predicting an increase of 0.2% in the overall index and a rise of 0.2% in the core data. Stronger than expected readings may raise inflation concerns in the bond market. That would be bad news for bonds and mortgage rates because inflation is the number one nemesis of the bond market as it erodes the value of a bond's future fixed interest payments. As inflation becomes more of a concern in the markets, bonds become less appealing to investors, leading to falling prices, rising yields and higher mortgage rates.
Overall, we should see a much calmer week in the markets and mortgage rates following last week’s surprise super rally. It wasn’t scheduled economic data that caused bond yields and mortgage rates to drop unexpectedly. It was trade tariff-related news that was extremely bond favorable and bad news for stocks. Despite having significant economic data on the calendar, it was that trade news that improved rates more than all of the week’s data combined. There is little chance of seeing a similar move this week. In fact, with so little scheduled this week- especially the early days, don’t be surprised to see a little pressure in bonds as traders sell some holdings to capture profits from last week’s rally. This may push mortgage rates a little higher early this week. The most important day for rates looks to be Friday while the least active day will probably be Tuesday. As we saw last week though, the markets can get extremely active at any time. Therefore, please keep an eye on them if still floating an interest rate and closing in the near future.