November 18th, 2009 4:16 PM by Mel Samick
Wednesday's bond market opened in negative territory despite some extremely favorable economic news. The stock markets are also in negative ground with the Dow down 11 points and the Nasdaq down 11 points. The bond market is currently down 6/32, which should again keep this morning's mortgage rates unchanged.This morning's major economic news was the release of October's Consumer Price Index (CPI). It revealed a 0.3% increase in the overall reading and a 0.2% rise in the more important core data reading. Both of these figures were stronger than expected, indicating that prices at the consumer level of the economy rose more than thought. This can be considered bad news for bonds and mortgage rates because it raises concerns about inflation in the economy. Inflation is the number one nemesis of the bond market because it erodes the value of a bond's future fixed interest payments. This leads to bond selling and higher mortgage rates.The second report of the day was October's Housing Starts. It showed a surprisingly large drop in starts of new construction homes. The 10.6% decline in starts drops them to their lowest level in six months and is a setback for those who felt the housing sector may be strengthening. Unfortunately for mortgage shoppers, the negative CPI news is much more important to the markets than the favorable housing data is. There, this data has had little impact on this morning's mortgage rates.The Conference Board will release its Leading Economic Indicators (LEI) late tomorrow morning. This is a moderately important report that attempts to predict economic activity over the next three to six months. It is expected to show a 0.4% increase, meaning economic activity will rise over the next couple of months. Generally speaking, this would be bad news for bonds. However, since this data is considered only moderately important, its results need to vary greatly from forecasts for it t o affect mortgage rates.We will also get weekly unemployment figures from the Labor Department tomorrow morning. However, unless there is a wide variance between the number of claims announced and forecasts of 504,000, I don't think this report will have much of an influence on bond trading or mortgage pricing.