Daily Market Commentary
Updated on December 11, 2018 10:19:36 AM EST Tuesday’s bond market has opened fairly flat despite early stock strength and unfavorable economic data. Stocks are posting strong gains during early trading, pushing the Dow higher by 207 points and the Nasdaq up 80 points. The bond market is currently up 1/32 (2.86%), but weakness late yesterday should cause this morning’s mortgage rates to be slightly higher than yesterday’s early pricing.
Today’s sole economic data was November's Producer Price Index (PPI) at 8:30 AM ET. It showed a 0.1% increase in the overall reading and a 0.3% rise in the more important core data. Both readings were stronger than forecasts of unchanged and up 0.1% respectively. Those readings indicate inflationary pressures were stronger at the producer level of the economy than many had thought. Because bonds become less appealing to investors when inflation is rising, this was bad news for mortgage rates.
November's Consumer Price Index (CPI) is tomorrow’s only relevant economic data, coming at 8:30 AM ET. It is the sister release to today’s PPI, except it tracks inflationary pressures at the more important consumer level of the economy. It is expected to show no change in the overall reading while the core data is forecasted to show a 0.2% increase. This data is one of the most watched inflation indexes, which is extremely important to long-term securities such as mortgage related bonds. Rising inflation erodes the value of a bond's future fixed interest payments. It also allows the Fed to be more aggressive with short-term interest rate increases. That translates into falling bond prices and rising mortgage rates. Therefore, weak readings would be favorable for the bond market and mortgage shoppers.
This week’s two relevant Treasury auctions will take place tomorrow and Thursday. Tomorrow’s 10-year Note sale is the more important of the two and will likely have a bigger influence on mortgage rates. Results of it and Thursday's 30-year Bond sale will be posted at 1:00 PM ET each day. If they are met with a strong demand from investors, particularly international buyers, we should see strength in the broader bond market and improvements to mortgage pricing during afternoon hours those days. On the other hand, a weak interest in the auctions could lead to upward revisions to rates.
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