Bond Market Awaits Direction from GDP

Bonds are flat this morning as the market prepares for tomorrow’s release of the updated GDP report. With GDP being one of the primary drivers of mortgage interest rates, it could be a market mover. The past report showed that the US economy was growing at an annualized pace of 2.2%. The current consensus is predicting a slight improvement up to 2.3%. If the actual report comes in much stronger than expectations, we could see mortgage bonds take a hit. Given the current signs of a growing economy, a stronger than expected report seems more likely than growth showing much less than expectations.

New Unemployment Claims continue to indicate a strong labor market, with this morning’s report showing only 217,000 claims last week. This is on the heels of the prior week’s 49 year low of just 207,000, which has since been revised up to 208,000. Since that was the “sample week” used to help estimate new job creations for the month of July, this portion of the formula suggests that we will see a strong number when the data is released on August 3^rd. Once again, this could further deteriorate interest rates.

With weakness continuing in the bond market, we will maintain our locking bias.