Today's only relevant economic data was July's Producer Price Index (PPI) at 8:30 AM ET that revealed a 0.6% rise in the overall reading and 0.5% increase in the more important core data. Both readings were well above forecasts of 0.3% and 0.1% respectively, indicating inflationary pressures at the producer level of the economy were stronger than thought last month. Accordingly, we can consider the data bad news for bonds and mortgage rates as rising inflation makes long-term securities, such as mortgage bonds, less appealing to investors.
This morning's data is only part of the reason for the weak open in bonds. Overnight news that Russia claims to have developed a COVID-19 vaccine had bonds in negative ground before the PPI was released. Optimism about another stimulus package to boost economic activity is rising, also affecting this morning's trading.
The sister release to today's PPI report, July's Consumer Price Index (CPI), will be posted at 8:30 AM ET tomorrow morning. This is normally one of the more important reports for the bond market each month because it measures inflation at the consumer level of the economy. Forecasts are showing a 0.3% rise in the overall reading and a 0.2% increase in the more important core data. As with today's version, there are two major readings to this release. Weaker readings should help lead to lower mortgage rates since it would mean inflationary pressures at the consumer level of the economy remain subdued.
We also have the first of this week's two Treasury auctions taking place tomorrow that may affect rates. 10-year Notes will be sold tomorrow while 30-year Bonds sell Thursday. It is fairly common to see some weakness in bonds before these sales as investors prepare for them. If the sales are met with a decent demand from investors, indicating that interest in longer-term securities such as mortgage-related bonds is good, the earlier losses are often recovered after the results are announced. Results of sales will be posted at 1:00 PM ET of each auction day, making these early afternoon events for rates.
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