Updated on October 29, 2020 10:05:27 AM EDT
Yesterday’s 5-year Treasury Note auction did not go as well as hoped. The benchmarks we use to gauge investor demand in the securities indicated a lackluster interest. Fortunately, the broader bond market had little reaction to the results, meaning they had no impact on mortgage rates. However, yesterday’s sale leaves us little to be optimistic about in today’s 7-year Note auction. If there is a reaction, it will come shortly after results of today’s sale are posted at 1:00 PM ET. A strong demand could help lead to a slight downward revision to rates this afternoon.
Today’s big economic release was the initial GDP reading for the 3rd quarter. It revealed that the economy strongly rebounded from the 2nd quarter shutdown with a 33.1% annual rate of growth during the July through September months. That was a bit stronger than the 30% that was forecasted, but considering the overall number, the size of the variance isn’t concerning. The economy came to a screeching halt during the second quarter, so it is no surprise that there was a spike in activity as the country continued to reopen. Technically, the larger increase is bad news for bonds and mortgage rates. Although, the data has failed to move this morning’s mortgage rates.
Also posted early this morning was last week’s unemployment update that showed 751,000 new claims for unemployment benefits were filed during the week. This was a decline from the previous week’s revised 791,000 new filings and lower than expectations. That means while the employment sector did improve last week, it still shows significant weakness. As with the GDP, by theory, the lower number of claims is considered to be bad news for bonds and rates. However, the bigger picture about the sector remains the same. That has prevented this morning’s mortgage pricing from reacting negatively.
Tomorrow has three pieces of data that we need to be concerned with. The first is Septembers Personal Income and Outlays report at 8:30 AM ET. This data gives us an indication of consumer ability to spend and current spending habits. There also is an inflation reading in the data that the Fed heavily relies on. It is important to the markets because consumer spending makes up such a large part of the U.S. economy. Rising income generally indicates that consumers have more money to spend, making economic growth more of a possibility. This is bad news for the bond market and mortgage rates because it raises inflation concerns that make long-term securities, such as mortgage-related bonds, less attractive to investors. Analysts are expecting to see a 0.3% increase in income and a 1.0% rise in spending. Smaller than expected increases in both readings would be good news for the bond market and mortgage pricing.
The 3rd Quarter Employment Cost Index (ECI) will also be released early tomorrow morning. This data tracks employer costs for salaries and benefits, giving us an indication of wage inflation pressures. Rapidly rising costs raises wage inflation concerns and may hurt bond prices. It is expected to show an increase in costs of 0.6%. A smaller than expected increase would be good news for mortgage rates, but this is not one of the more important reports of the week.
This weeks last report comes at 10:00 AM ET tomorrow when the University of Michigan updates their Index of Consumer Sentiment for this month. This report is moderately important because it helps us measure consumer confidence and willingness to spend. Current forecasts show this index remaining nearly unchanged from its preliminary reading posted two weeks ago. Good news for mortgage rates would be a sizable decline in the index, meaning consumers are likely to not spend as much in the near future.
©Mortgage Commentary 2020