This week brings us the release of only two monthly reports that are relevant to the bond market and mortgage rates, but one of them is considered to be extremely important. In addition to those reports, we also will get the minutes from the last FOMC meeting and two Treasury auctions that have the potential to influence the bond market and quite possibly mortgage rates.
The Commerce Department will post November’s Factory Orders data late Monday morning. This data gives us a fairly important measurement of manufacturing sector strength. It is similar to the Durable Goods Orders release that was posted just before Christmas, except this report includes orders for both durable and non-durable goods. Durable goods are items that are expected to last three or more years such as appliances, electronics and autos. Examples of non-durable goods are food and clothing. Analysts are expecting to see an increase of 1.7% in new orders. This report generally does not have a huge impact on the bond market or mortgage rates, but it can influence bond trading enough to create a minor change in rates if it shows a sizable variance from forecasts. The smaller the increase, the better the news it is for mortgage pricing.
November’s Goods and Services Trade Balance will be posted early Tuesday morning. It measures the size of the U.S. trade deficit and is expected to show a $40.4 billion deficit. This data usually does not directly affect mortgage rates, but it does influence the value of the U.S. dollar versus other currencies. A stronger dollar makes U.S. securities more attractive to international investors because they are worth more when sold and converted to the investor’s domestic currency. But unless we see a significant variance from forecasts, I don’t believe this data will lead to a change in mortgage rates Tuesday.
There are Treasury auctions scheduled several days this week, but the two that are the most likely to affect mortgage rates will be held Wednesday and Thursday when 10-year Notes and 30-year Bonds are sold. The 10-year sale is the more important of the two as it will give us a better indication for demand of mortgage-related securities. If the sales are met with a strong demand from investors, we should see the bond market move higher during afternoon trading the days of the auctions. But a lackluster interest from buyers, particularly international investors, would indicate a waning appetite for longer-term U.S. securities and lead to broader bond selling. The selling in bonds would result in upward revisions to mortgage rates. Results will be posted at 1:00 PM ET each day, so any reaction will come during early afternoon trading.
Also Wednesday is the release of the minutes from the last FOMC meeting. They will give market participants insight to the Fed’s thinking and concerns regarding the economy, inflation and monetary policy. It is one of those pieces of information that may cause a great deal of volatility in the markets or be a non-factor, depending on what the minutes show. They will be released at 2:00 PM ET, so they won’t affect the markets or mortgage rates until afternoon hours. I don’t suspect this particular set of minutes will cause too much concern or excitement because the last FOMC meeting was followed by revised Fed forecasts and a press conference by Chairman Bernanke. Although, the meeting did yield the first reduction in the Fed’s current bond buying program (QE3). Therefore, analysts will be looking for any tidbits that could help predict when the next reduction will be made.
The big news of the week will come at 8:30 AM Friday when the Labor Department will post December’s employment figures. The Employment report is arguably the single most important monthly release we see. It gives us the national unemployment rate, the number of jobs added or lost during the month and average hourly earnings, which is a key measure of wage inflation. Rising unemployment, a decline in payrolls and flat earnings would be ideal news for the bond market.
Current forecasts call for no change from November’s unemployment rate of 7.0%, 197,000 new jobs added to the economy and an increase in earnings of 0.2%. If we see weaker than expected results, the bond market should rally and stocks should fall, improving mortgage rates noticeably Friday. However, stronger than expected readings will likely raise optimism about the economy, pushing stocks and mortgage rates sharply higher.
Overall, Friday is the key day of the week with the almighty Employment report being posted, but Wednesday afternoon also has a chance to be pretty active. The least active day will likely end up being Tuesday and Thursday doesn’t have too much to be concerned about either. The benchmark 10-year Treasury Note yield closed just below 3.00% last week. I will be watching it very closely for mortgage rate direction over the next several weeks. It has been in a tight range between 2.95% and 3.00%. If we could get enough favorable news to push it below 2.95%, we should see a noticeable downward move. Since mortgage rates follow bond yields, that would be good news for mortgage shoppers. On the other hand, breaking above 3.00% and staying above could indicate a sharp upward move in rates over the next couple weeks. Therefore, please keep an eye on the markets and maintain contact with your mortgage professional if still floating an interest rate.