Next Week’s Bond Market Outlook

This week brings us the release of four relevant economic reports in addition to the minutes from the last FOMC meeting. The most important of the four are two inflation related indexes that will measure price increases at different stages of the economy. There is no relevant data scheduled for release tomorrow.

The week’s first piece of data will be re leased early Tuesday morning. The Labor Department will post March’s Producer Price Index (PPI), which measures inflationary pressures at the producer level of the economy. There are two portions of the report that analysts watch- the overall reading and the core data reading. The core data is more important to market participants because it excludes more volatile food and energy prices. If it shows rapidly rising prices, inflation fears may hurt bond prices, leading to higher mortgage rates Tuesday morning. However, a small increase, or better yet a decline in prices, would be good news for the bond market and mortgage rates. Current forecasts are calling for a 0.4% increase in the overall reading and a 0.2% rise in the core data.

March’s Housing Starts report will also be posted Tuesday morning, but it will most likely be a non-factor in the market. It gives us a measurement of housing sector strength and mortgage credit demand, however, usually doesn’t cause much movement in mortgage pricing unless it varies greatly from forecasts. It is this week’s least important report.

Also Tuesday will be an afternoon release of the minutes from the last FOMC meeting. Market participants are interested in how divided the Fed is towards rate hikes and possible future moves. The minutes give us insight to their current thought process and individual Fed member opinions. Any surprises in the 2:00 PM ET release could cause afternoon volatility in the markets and possible changes in mortgage pricing.

The next relevant data will come Wednesday, when the Labor Department posts March’s Consumer Price Index (CPI). This index is similar to Tuesday’s PPI, but tracks prices at the more important consumer level of the economy. As with the PPI, higher than expected readings could lead to higher mortgage rates. Current forecasts are also calling for an increase of 0.4% in the overall index and 0.2% in the core data.

At 10:00 AM Thursday , the Conference Board will release its Leading Economic Indicators (LEI), which attempts to measure economic activity over the next three to six months. If it estimates an increase in activity, the bond market may fall and mortgage rates could rise. If it shows weaker than expected readings, the bond market may rally and mortgage rates should move lower. This is considered to be a moderately important report, so we may see some movement in rates as a result of this report. It is expected to show no change.

Overall, look for the most movement in rates Tuesday or Wednesday. The most important day of the week could end up being either day. Wednesday’s PPI and Fed minutes will be big, but Tuesday’s PPI report is the first data and can also cause significant movement in the bond market and therefore mortgage pricing. The recent upward trend in bond yields and mortgage rates is expected to reverse course, but stronger than expected data could push them h igher before retreating. Accordingly, please proceed cautiously, especially if still floating an interest rate.

If I were considering financing/refinancing a home, I would…. Float if my closing was taking place within 7 days… Float if my closing was taking place between 8 and 20 days… Float if my closing was taking place between 21 and 60 days… Float if my closing was taking place over 60 days from now… This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.