Market Commentary

Updated on May 23, 2024 10:08:23 AM EDT

Yesterday's 20-year Treasury Bond auction was mostly uneventful. The benchmarks that we use to gauge investor interest in the sale showed a decent demand compared to other recent sales. Bonds had little reaction to the 1:00 PM ET results announcement, meaning it was a non-factor for mortgage rates.

Also posted yesterday afternoon were the minutes from April 30 – May 1 FOMC meeting at 2:00 PM ET. There was one note that got the attention of the markets. There appears to be more willingness amongst FOMC members to raise key short-term interest rates than analysts had thought. Since the decline in inflation has stalled this year, there had been discussion or theories in the markets that the Fed may need to raise key rates to get it trending lower again. Seeing the Fed is actually thinking about it being a possibility makes it more of a reality than it was before the minutes were posted.

The first of today's two economic releases was last week's unemployment figures at 8:30 AM ET. They showed that 215,000 new claims for unemployment benefits were filed last week, down from the previous week's revised 223,000 and lower than expectations. Declining claims are a sign of strength in the employment sector. Therefore, this report is bad news for bonds and mortgage rates.

April's New Home Sales report was released at 10:00 AM ET. It pointed to a softer than thought new home portion of the housing sector. The 4.7% decline in sales of newly constructed homes is good news for mortgage rates, but forecasts were predicting slower activity and this report doesn't carry a heavy influence because it covers only a small portion of all home sales in the U.S.

Tomorrow morning has two pieces of economic data being released, starting with April's Durable Goods Orders at 8:30 AM ET. Durable goods are big-ticket products that are made with an expected life span of three or more years, such as airplanes, appliances, and electronics. It is expected to show a decline of 0.5% in new orders, hinting the manufacturing sector weakened last month. This data is known to be quite volatile from month to month. Therefore, a small variance from forecasts will likely have a minimal impact on mortgage rates. The larger the decline in orders, the better the news for rates.

The last mortgage-related data of the week will come from the University of Michigan at 10:00 ET tomorrow morning when they update their Index of Consumer Sentiment for May. This type of data is watched fairly closely because when consumers are feeling more confident about their own financial situations, they are more likely to make a large purchase in the near future. Rising confidence and the higher levels of spending that usually follow are considered negative news for bonds and mortgage rates. Tomorrow's report is expected to show a slight upward revision from this month's preliminary reading of 67.4. A higher reading would be considered bad news for bonds and mortgage pricing while a large downward revision should help boost bond prices and lead to a slight improvement in rates.

Also worth noting about tomorrow is the early close for the bond market ahead of Monday's Memorial Day holiday. The bond market will close at 2:00 PM ET while stocks trade for a full day. All markets will be closed Monday for the holiday. We sometimes see a bit of volatility in bonds in these situations as traders look to protect themselves over the three-plus day weekend. This could lead to a little pressure in bonds as the day progresses.

 ©Mortgage Commentary 2024