Market Commentary

Updated on June 24, 2021 10:04:04 AM EDT

Yesterday's 5-year Treasury Note auction was uneventful, meaning investor demand was neither strong nor lackluster. The benchmarks we use to gauge demand showed an average level of interest compared to other recent sales. The bond market had little reaction to the results, making them a non-factor for mortgage rates. They also don't give us much to be optimistic about in today's 7-year Note sale. If it draws the same type of demand as yesterday's sale, it should also have no impact on mortgage rates later today. Results of today's auction will be posted at 1:00 PM ET. If there is a reaction, it will come during early afternoon trading.

The first of this morning's three economic reports was May's Durable Goods Orders at 8:30 AM ET. It revealed a 2.3% increase in new orders at U.S. factories for products such as airplanes, appliances and electronics. This was close to expectations, especially considering how volatile this data can be each month. The increase shows strength in the manufacturing sector, but no surprises allows us to consider the data neutral for bonds and mortgage rates.

Today's second release was the second revision to the 1st Quarter Gross Domestic Product (GDP) reading that showed the economy grew at an annual rate of 6.4% during the first three months of the year. That matched the previous estimate and what analysts were expecting to see. No revisions and the age of this data make it irrelevant to today's mortgage rates. Market participants are looking more towards next month's release of the current quarter's initial GDP reading.

Last week's unemployment figures that were posted this morning indicated 411,000 new claims for benefits were filed last week, down from the previous week's revised 418,000 initial filings. A decline in weekly claims is a sign that the employment sector strengthened a little during the week. However, because traders were expecting to see only 380,000 new claims, we can consider the news to be slightly favorable for bonds and mortgage pricing.

Tomorrow has two more relevant economic releases for the markets to digest, starting with May's Personal Income and Outlays report at 8:30 AM ET. It gives us an indication of consumer ability to spend and current spending activity. These are important readings because consumer spending makes up over two-thirds of the U.S. economy. If consumer income is rising, they have more money to spend each month. Analysts are expecting to see a 2.5% decline in income while spending rose 0.3% during the month. This report also includes an important inflation reading that the Fed relies on during their FOMC meetings (PCE). It is expected to show a 0.5% increase, indicating inflation is rising. Since rising inflation erodes the value of a bond's future fixed interest payments, unexpected increases in the PCE make bonds less appealing to investors and usually pushes mortgage rates higher.

The University of Michigan will close out this week's data when they update their Index of Consumer Sentiment for June at 10:00 AM ET tomorrow. This index is a measure of consumer willingness to spend. A downward revision would be considered good news for bonds and rates. Forecasts are calling for little change from this month's preliminary reading of 86.4.

 ©Mortgage Commentary 2021


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