Yesterday's 7-year Treasury Note auction was met with a lackluster demand from investors. The indicators showed investors were less interested in yesterday's sale than they were in Monday's auction of 5-year Notes. As we would expect, bonds reacted negatively to the sale. However, they had improved noticeably between the morning rate posting time and the 1:00 PM ET auction result announcement. In other words, even though there was a negative move, bonds were still better than they were earlier in the morning. This allowed some lenders to issue an intraday improvement in rates before closing.
The 3rd Quarter Gross Domestic Product (GDP) revision was posted at 8:30 AM ET this morning. It showed the U.S. economy grew at an annual rate of 5.2%, stronger than the 4.9% that was previously announced. The upward revision means the U.S. economy was stronger than previously thought. One reason this is bad news for bonds and mortgage rates is that the resiliency in the continued economy may force the Fed to be more aggressive with monetary policy (future rate hikes). Fortunately, the bond market shrugged off the news and extended yesterday's rally.
The Federal Reserve's Beige Book is set for release at 2:00 PM ET today. This report is named simply after the color of its cover but details economic conditions throughout the U.S. by Fed region via their business contacts. Since the Fed uses this info during their FOMC meetings, its results can have a fairly big impact on the financial markets and mortgage rates if it reveals any surprises. Of particular interest is information regarding inflation, employment or consumer demand. If there is a reaction to the report, it will come during mid-afternoon trading.
Tomorrow brings us two early morning economic releases, one of which is much more important than the other. The release drawing more attention will be October's Personal Income and Outlays data that will give us an indication of consumer ability to spend and their current spending habits. It also includes an inflation reading (PCE index) that the Fed relies on heavily when making their monetary policy decisions. Because consumer spending is such a large part of the U.S. economy and controlling inflation is a key part of the Fed's responsibilities, data such as this can influence the markets and mortgage rates. The bond market tends to thrive in weaker economic conditions, so good news for mortgage rates would be softer than expected readings, particularly in the PCE. Current forecasts show a 0.2% increase in both the income reading and spending. Analysts are expecting the core PCE to have increased 0.1%.
Last week's unemployment update will give us a little insight into the employment sector. It is expected to show 215,000 new claims for benefits were filed last week, up from the previous week's 209,000 new filings. The higher the number tomorrow, the better the news for mortgage rates because rising claims is a sign of weakness in the employment sector. If there is a surprise in the inflation reading within the morning's other report, it will likely prevent this release from having an impact on tomorrow's mortgage pricing.
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