Wednesday, May 23, 2018
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Updated on May 23, 2018 10:35:25 AM EDT

Today’s only relevant economic data was Aprils New Home Sales report at 10:00 AM ET. It showed a 1.5% decline in sales of newly constructed homes. That was a smaller decline percentage than was expected, but a downward revision to March’s sales skewed that figure. The number of sales is lower than what analysts had forecasted, making the data favorable for bonds and mortgage rates. However, this is not the cause for this morning’s bond gains. This report is considered to be minor and bonds were already showing gains during overnight trading.

We also have two afternoon events to watch today. First up is the 5-year Treasury Note auction. These types of sales usually do not directly impact mortgage pricing, but they can influence general bond market sentiment. If the sale goes poorly, we could see broader selling in the bond market that leads to upward revisions to mortgage rates. On the other hand, strong sales usually make bonds more attractive to investors, bringing more funds into bonds. The buying of bonds that follows often translates into lower mortgage rates. Results will be posted at 1:00 PM ET, so any reaction will come during early afternoon hours. We will repeat this scenario tomorrow when 7-year Notes are sold.

The other is the minutes of the last FOMC meeting. Market participants will be looking for how Fed members voted during the last meeting and any comments about inflation concerns or economic growth. The goal is to form opinions about the Feds next move regarding interest rates, which is expected to come at next month’s meeting. Since the minutes will be released at 2:00 PM ET, if there is a market reaction to them it will be evident during mid-afternoon trading.

Besides the 7-year Note auction and weekly unemployment figures, we also have another housing report set for release tomorrow. The National Association of Realtors will give us their Existing Home Sales report at 10:00 AM ET. As with its sister report (today’s New Home Sales), this data will also give us a measurement of housing sector strength demand but tracks resales of existing homes in the U.S. This type of data is relevant because a weakening housing sector makes broader economic growth less likely. Current forecasts are calling for a decline in home sales between March and April. Ideally, the bond market would prefer to see a large decline, indicating housing sector weakness. A large increase in sales could lead to bond weakness and a slight increase in mortgage rates tomorrow morning since a strengthening housing sector raises optimism about general economic growth.

 ©Mortgage Commentary 2018