July 9th, 2009 3:39 PM by Mel Samick
Thursday's bond market has opened well in negative territory as investors reverse positions taken over the past few days. This can also be considered profit-taking to capture the gains from the recent rally. The stock markets opened with gains but are now mixed with the Dow down a 6 points and the Nasdaq up 7 points. The bond market is currently down 34 basis points, but we will still see an improvement in this morning's mortgage rates compared to yesterday's morning rates due to gains late yesterday.This morning's weekly unemployment figures showed a surprise drop in new claims for benefits. The Labor Department reported that 565,000 new claims were filed last week. This was much lower than the 603,000 that was expected. However, seasonal plant closings and the Independence Day holiday are believed to have skewed the final total. This data is not considered to be of high importance, but the size of the drop in claims and the fact it's the lowest total since January did catch the attention of traders and may be contributing to this morning's losses in bonds.Yesterday's late rally in bonds was attributed to an overwhelmingly positive auction of 10-year Treasury Notes. The results showed that there was still a good demand for government securities, leading to buying in the broader bond market. This led to afternoon improvements in mortgage rates yesterday. But, it appears that some traders think that bonds are ready for a pullback and are selling holdings this morning. This could be a result of Alcoa's earnings last night that beat estimates or simply an expectation of profit-taking from the recent rally in bonds. Regardless of the reasoning, bonds are not looking pretty this morning. The question is whether the rally has run out of steam or is this is just a minor setback before another move higher.Today also brings us the $11 billion auction of 30-year Bonds. Results of this sale will be posted at 1:00 PM ET, but this auction will most likely be of much less importance to the markets and mortgage rates than yesterday's 10-year sale was. I believe that it can do more harm than good if that makes sense. A strong demand from traders probably will be considered old news and not be enough to reverse this morning's losses. However, a weak demand could raise more concern that the bond rally may be ending, possibly leading to even more selling this afternoon. That could lead to afternoon increases in mortgage rates.There are two economic reports scheduled for release tomorrow morning. The first is May's Goods and Services Trade Balance report during early trading, which measures the size of the U.S. trade deficit. This data is not considered to be of high importance to the bond market and will not likely have an impact on mortgage rates. However, if it does vary greatly from analysts' forecasts of a $30.0 billion deficit , we may see some movement in bond prices and possibly a slight change in mortgage pricing. The second monthly report is the University of Michigan's Index of Consumer Sentiment that is released in a preliminary form each month and then followed up two weeks later with a final reading. The preliminary reading for July will be posted late tomorrow morning and is expected to fall from June's final reading of 70.8. This would indicate that consumers were less comfortable with their own financial situations this month than last month. It is believed that if consumers are confident in their own finances, they are more apt to make large purchases in the near future. And with consumer spending making up two-thirds of our economy, investors pay close attention to reports such as these.