Market Commentary for the Week of February 9th

This week brings us the release of only two pieces of monthly economic data that are relevant to mortgage rates in addition to two Treasury auctions. One of the economic reports is considered highly important to the markets, but the other is not likely to be a market mover. We still could see a fair amount of movement in mortgage rates though, especially if stocks make a sizable move upward or downward.

Nothing of concern is due Monday, Tuesday or Wednesday morning, leaving bond trading to be driven by the stock markets and overseas financial news the first half of the week. If the major stock indexes move higher, we will probably see funds move away from bonds and into stocks. This would lead to higher mortgage rates as bond prices and yields move in opposite directions. Mortgage rates tend to follow bond yields, so we prefer to see bond prices go up, pushing yields and rates lower.

The two important Treasury auctions come 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 an 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 afternoon revisions to mortgage rates.

The week’s first release is one of the more important ones we get each month. The Commerce Department will post January’s Retail Sales data early Thursday morning. This report is very important to the financial markets because it measures consumer spending. Since consumer spending makes up over two-thirds of the U.S. economy, any related data is watched quite closely. If Thursday’s report reveals weaker than expected retail-level sales, the bond market should thrive and mortgage rates will fall since it would be a sign that the economy is not as strong as many had thought. However, a stronger reading than the 0.5% decline that is expected could lead to higher mortgage rates Thursday.

February’s preliminary reading to the University of Michigan’s Index of Consumer Sentiment will be released late Friday morning. This index measures consumer willingness to spend and also usually has a moderate impact on the financial markets. If it shows an increase in consumer confidence, the stock markets may move higher and bond prices could fall. It is currently expected to come in at 98.5, up a little from January’s final reading of 98.1. That would indicate consumers were a little more optimistic about their own financial situations than last month and are more likely to make large a purchase in the near future. Since consumer spending makes up over two-thirds of the U.S. economy, this would be considered slightly negative news for bonds and mortgage pricing. Ideally, we would prefer to see a large decline in confidence.

Overall, I believe we will see the most movement in rates the latter part of the week. Friday’s Employment report caused a strong sell-off in bonds that picked up pace as the day progressed. That caused most lenders to revise pricing higher during afternoon trading, but bonds continued to slide after many of those increases were posted. That could leave many lenders heading into the new week with a small increase waiting to be built into Monday’s rates. This means Monday may also be active for mortgage rates despite the release of any relevant economic data. I see Thursday as the best candidate for the most important day and Tuesday being the least active, assuming stocks remain calm most of the week. However, despite it being a relatively light week in terms of economic releases, I still recommend maintaining contact with your mortgage professional of still floating an interest rate.