August 12th, 2009 9:19 AM by Mel Samick
Tuesday's bond market has opened in positive territory following early stock weakness and favorable result s in this morning's economic news. The stock markets are posting noticeable losses with the Dow down 97 points and the Nasdaq down 26 points. The bond market is currently up 14/32, which with yesterday's late strength should improve this morning's mortgage rates. Today's relevant economic data was Employee Productivity and Costs data for the second quarter. It showed a sharp increase in productivity compared to the 1st quarter's final reading. The 6.4% jump was higher than analysts had expected and is considered good news for bonds and mortgage rates. This data didn't push stocks lower, but the drop in stocks has also helped boost bond prices this morning.June's Trade Balance report will be released early tomorrow morning. It gives us the size of the U.S. trade deficit but is the week's least important report and likely will have little impact on the bond market and mortgage rates. Analysts are expecting to see a $28.6 billion deficit, but it will take a wide variance to directly influence mortgage pricing.The FOMC meeting that began today will adjourn at 2:15 PM ET tomorrow. It is expected to yield no change to key interest rates. Usually, the post-meeting comments seem to have more of an influence on the markets than the rate adjustments themselves, or a lack of one in many cases. Look for the statement to lead to volatility during afternoon trading if it hints at what the Fed's next move may be and when it will come. If the statement does not give us new information, mortgage rates will probably move little after its release. The most important data of the week comes Thursday and Friday when we will get measurements of consumer spending, inflation at the consumer level of the economy, industrial production and consumer sentiment. This is where we will probably see the most movement in rates and I will remain very cautious towards rates until we get past the FOMC statement and those economic reports. I suspect that we may see bond prices react negatively to some of the upcoming events that will lead to another increase in mortgage rates.Also worth noting are two important Treasury auctions this week. The sale of 10-year Notes will be held tomorrow while 30-year Bonds will be sold Thursday. We often see some weakness in bonds ahead of the sales as the firms participating prepare for them. However, as long as they are met with decent demand from investors, the firms usually buy them back. This tends to help recover any presale losses. But, if the sales are met with a lackluster interest from investors- particularly international buyers, the bond market may move lower after the results are posted and mortgage rates may move higher. Those results will be announced a t 1:00 PM each sale day.