Updated on January 21, 2021 10:07:36 AM EST

Yesterday’s 20-year Treasury Note auction was not well received. The benchmarks we use to gauge investor demand showed a below-average level of interest in the securities. Despite the disappointing results, the bond market still managed to stage a late rally that led to a fair number of lenders making an intraday improvement to rates before closing.

There were two early pieces of economic data posted this morning. One was Decembers Housing Starts that showed a 5.8% increase in new home groundbreakings last month. This was stronger than expected, indicating growth in the new home portion of the housing sector. That makes the data unfavorable for bonds and mortgage rates.

Last week’s unemployment figures were also released this morning, revealing 900,000 new claims for benefits were filed last week. Forecasts were calling for around 870,000 claims, but the decline from the previous week’s revised 926,000 new filings shows modest improvement in the sector week over week. Therefore, we can consider the data neutral for mortgage rates.

This morning’s data isn’t the cause of the early bond weakness. It is being fueled partly by traders capturing profits from this week’s bond rally and also by comments from the European Central Bank that raises speculation they may be reducing their bond buying program sooner than later. The latter is a sign that the EU economy may be stabilizing, making the safety of bonds less appealing to global investors.

Tomorrow has a single economic report that the markets will be watching. Decembers Existing Home Sales from the National Association of Realtors will be released at 10:00 AM ET tomorrow. This data will give us detailed information about housing sector strength and mortgage demand by tracking home resales in the U.S. It is expected to show a decline in sales from Novembers level, meaning the housing sector softened last month. Ideally, bond traders would like to see a large decline in sales, pointing towards sector weakness. This is because weaker housing makes broader economic growth more difficult. However, as long we dont see a significant surprise in its results, it shouldnt have a noticeable impact on mortgage rates.

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