Friday’s bond market has opened in negative territory despite favorable consumer spending data. Stocks are mixed but fairly flat with the Dow down 23 points and the Nasdaq up 19 points. The bond market is currently down 4/32 (4.66%), which should cause an increase in this morning’s mortgage rates of approximately .125 of a discount point.

Yesterday’s 30-year Treasury Bond auction did not draw as much interest as Wednesday’s 10-year Note sale did. The benchmarks indicated an average demand for the securities compared to other recent sales. This was a bit of a disappointment after Wednesday’s auction drew a decent demand, but the 1:00 PM ET results announcement failed to draw a reaction in the bond market. Accordingly, we are labeling the event neutral for mortgage rates.

This week’s third major economic release was July’s Retail Sales report at 8:30 AM ET. It revealed consumers spent less last month than they did in June by a pretty hefty margin. Sales dropped 0.6% compared to June, the first decline in nine months and the largest monthly decline since May of last year. A secondary reading that excludes more costly and volatile auto transactions fell 0.3%. Both readings were expected to show a gain of 0.2%. This data is extremely relevant because consumer spending makes up almost 70% of the U.S. economy. If consumers stop spending, it will be difficult for the economy to continue growing.

While the sales data was clearly favorable for bonds and mortgage rates, we are seeing a minor negative reaction to the news because it may prevent the Fed from raising key short-term interest rates in the immediate future. Some traders want to see the Fed bump rates higher to bring inflation down since bonds are less appealing to investors when inflation is high. It erodes the value of a bond’s future fixed interest payments, causing traders to sell them at a discount. This leads to lower bond prices, pushing their yields higher. The problem is that the Fed raises rates to slow the economy and if there are already signs of cracks, they may opt to delay taking action to bring inflation down. This could be why we are seeing a negative reaction to the data this morning. It was just too big of a miss from expectations.

Closing out this week’s economic calendar was the release of the University of Michigan’s Index of Consumer Sentiment for August at 10:00 AM ET. They said the index stands at 51.0, falling well short of the 54.2 that was predicted. The lower reading and noticeable decline from July’s 55.2 is a sign that consumers felt much better about their own finances last month than they do this month. Waning confidence usually translates into softer consumer spending numbers that are needed to fuel economic growth (see Retail Sales notes above). Again, we can easily label this report as good news for bonds and mortgage rates, but it is not being reflected in this morning’s trading or mortgage pricing.

Next week has a small handful of monthly economic reports scheduled for release and another Treasury auction, but none of them are considered to be highly important to the mortgage market. We will also get the minutes from last month’s FOMC meeting that will give us more insight into the Fed’s thought process regarding inflation and key short-term interest rates. Monday has nothing of relevance scheduled, so we will be looking for weekend headlines from the Middle East to be the reason if there is a noticeable move in rates as the new week begins. In short, next week looks to be much lighter than this week was in terms of influences on mortgage rates. Look for details on all of next week’s activities in Sunday evening’s weekly preview.

If I were considering financing/refinancing a home, I would.... Lock if my closing was taking place within 7 days... Lock 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.