Market Commentary for the Week of March 10th

This week brings us the release of only three relevant economic reports along with two Treasury auctions for the markets to digest. Two of the three reports are considered highly important, so we could see a fair amount of movement in rates again the latter part of the week. There is nothing of relevance to mortgage rates being released or taking place Monday or Tuesday, so all of the week’s events are scheduled over three days.

The first thing on the calendar will come Wednesday afternoon. There are two Treasury auctions this week that could potentially affect mortgage rates. The first is the 10-year Treasury Note auction Wednesday and the 30-year bond sale will be held Thursday. Results of both sales will be posted at 1:00 PM ET on the sale days. If investor demand was high, we may see bonds rally during afternoon trading as it would hint that investors still have an appetite for longer-term securities. However, weak demand in the sales could lead to selling and an increase in mortgage rates late Wednesday and/or Thursday.

February’s Retail Sales data will come from the Commerce Department early Thursday morning. This data is extremely important to the financial markets because it measures consumer spending strength. Since consumer spending makes up over two-thirds of the U.S. economy, data that is related usually has a big impact on the markets. This month’s report is expected to show an increase in sales of approximately 0.2%. If it reveals a larger than expected increase, the bond market will likely fall and mortgage rates will move higher as it would indicate a stronger level of economic growth than many had thought. If it reveals a much weaker level of spending, I expect to see bond prices rise and mortgage rates improve Thursday morning.

The Labor Department will post February’s Producer Price Index (PPI) early Friday morning. This important index measures inflationary pressures at the producer level of the economy. There are two portions of the index- the overall reading and the core data. The core data is more important and watched more closely because it excludes more volatile food and energy (including gasoline) prices. If the index shows a large increase, inflation concerns will rise, making long-term investments such as mortgage-related bonds less attractive to investors. This would lead to higher mortgage rates Friday morning. Current forecasts are calling for a 0.2% increase in the overall reading and a 0.1% increase in the core data.

Also Friday is the University of Michigan’s Index of Consumer Sentiment for March just before 10:00 AM ET. This index gives us a measurement of consumer willingness to spend. If consumers are more confident in their own financial and employment situations, then they are more apt to make large purchases in the near future. This helps fuel consumer spending levels and economic growth. A drop in confidence will probably hurt the stock markets and boost bond prices, leading to lower mortgage rates if the PPI matches forecasts. Bad news for bonds and mortgage rates would be rising confidence. It is expected to show a reading of 82.0, which would be a small increase from February’s final reading 81.6.

Overall, I would label Thursday as the most important day of the week, but Friday is also likely to be active for mortgage rates. Stocks rallied last week, helping to drive bond yields and mortgage rates higher. The yield on the benchmark 10-year Treasury Note closed the week at 2.79%. This is troublesome for mortgage borrowers because rates tend to follow bond yields. This coming week will tell us a lot about which direction bond yields and mortgage pricing will be headed in the near future. It will be interesting to see if it moves closer to 2.95% or back toward 2.70%. I suspect it is going to move higher before moving much lower, so please be careful if still floating an interest rate and closing soon.