Tuesday’s bond market has opened in negative territory despite quite favorable economic news and an uneventful open in stocks. The Dow and Nasdaq are both currently down a couple of points. The bond market is currently down 13/32, which will likely push this morning’s mortgage rates higher by approximately .125 - .250 of a discount point.
December’s Consumer Confidence Index (CCI) was this morning’s only relevant economic data. The Conference Board said late this morning that their CCI reading stood at 52.5 this month. This was nearly a 2-point drop from November’s revised reading, indicating that consumers were less optimistic about their own financial situations than many had thought. Making the news even more interesting is the fact that analysts had forecasted an increase of 2 points from November. This means that while the markets were expecting a rise in confidence, it was actually falling. That is good news for the bond market because waning consumer confidence means consumers are less likely to make large purchases in the near future, limiting fuel for economic growth.
Despite this favorable data, the bond market is showing moderate losses. This could be partly due to trader maneuvering ahead of the Treasury auctions that will be held today and tomorrow. 5-year Notes will be sold today and 7-year Notes tomorrow. Tomorrow’s sale is a closer term to mortgage bonds than today’s is, but the first of the two often gives us the best measurement of investor demand. The pre-sale weakness is fairly common as participants hedge their positions before bidding starts, but as long as the sales don’t go poorly those early losses are often erased during afternoon trading.