Updated on August 10, 2022 10:03:15 AM EDT
Julys Consumer Price Index (CPI) was posted at 8:30 AM ET this morning, showing inflationary pressures were softer than thought last month. The overall CPI reading was unchanged while the more important core data rose 0.3%. Both readings were 0.2% below forecasts, signaling slowing inflation. This is very good news for bonds and mortgage rates because rising inflation makes a bond’s future fixed interest payment less appealing to investors and causes them to be sold at a discount that raises yields and mortgage pricing. Hopefully, this is a taste of what will be coming in similar reports over the next few months, signaling the worst of inflation is behind us.
We also have the results of the 10-year Treasury Note auction to watch later today. They will be posted at 1:00 PM ET, making this an early afternoon event for rates. If there was a decent demand for the securities, indicating that interest in longer-term securities such as mortgage-related bonds is good, we could see an intraday downward revision to mortgage pricing before the end of the day. On the other hand, a lackluster interest may fuel bond selling and an upward change in rates. This process will be repeated tomorrow when 30-year Bonds are sold.
Tomorrow has two pieces of economic data scheduled for release. The monthly report will be Julys Producer Price Index (PPI) at 8:30 AM ET. It is the sister release of today’s CPI but measures inflation at the producer level of the economy instead of consumer level. Analysts are predicting an increase of 0.3% in the overall index and a rise of 0.4% in the core reading. Stronger than expected readings would be bad news for bonds and mortgage rates because inflation is the number one nemesis of the bond market as it erodes the value of a bonds future fixed interest payments. High inflation makes bonds less appealing to investors, leading to falling prices, rising yields and higher mortgage rates.
The day’s other report will be last week’s unemployment update that is expected to show 263,000 new claims for benefits were filed during the week. Rising claims is a sign of employment sector weakness, so the larger the number tomorrow, the better the news it is for rates. Since this is just a weekly update, the PPI will draw much more attention than this report will.
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