Now that the shutdown has ended, at least for the next several weeks, we can turn our attention towards this week's economic calendar. This morning's bond improvement isn't a result of the government shutdown ending or any economic data released today. The single biggest reason we are seeing a positive move in bonds this morning is news from Japan's central bank that their bond buying program is indeed remaining in place. Comments made recently about a drop in the amount of bonds the Bank of Japan had purchased led some to speculate that they would be winding down their economic stimulus program soon. That would be an indication of expected strength in Japan's economy. Today's comments put an end to that rumor and U.S. securities are responding favorably.
Starting the week's calendar will be December's Existing Home Sales from the National Association of Realtors late tomorrow morning. This data will give us a measurement of housing sector strength and mortgage demand by tracking home resales in the U.S. It is expected to show a decline in sales from November's level, meaning the housing sector softened last month. Ideally, bond traders would like to see a large decline in sales that would point toward sector weakness because weaker housing makes broader economic growth more difficult. However, as long we don't see a significant surprise in its results, it shouldn't have a noticeable impact on tomorrow mortgage rates.
Tomorrow also brings us the first of this week's two relatively important Treasury auctions. The Treasury will auction 5-year Notes tomorrow and 7-year Notes Thursday. If these sales are met with a strong demand from investors, the broader bond market may improve during afternoon hours. If they draw a lackluster interest, they could lead to bond selling and higher mortgage rates tomorrow and/or Thursday afternoon. Results will be posted at 1:00 PM ET, so any reaction will come during early afternoon trading.
We do have two important economic releases set for Friday- December's Durable Goods Orders and the initial 4th quarter Gross Domestic Product (GDP) reading. Both can have a noticeable impact on the financial markets and mortgage rates. They would have been affected by the government shutdown, but now should be released as scheduled.
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