Gross Domestic Product (GDP)
The major economic news this morning was the first estimate of the 1st quarter Gross Domestic Product (GDP) at 8:30AM ET. Today’s release showed that the economy grew at a surprising rate of 3.2% annually. This was well above forecasts of 1.9% and much higher than the 4th quarter’s 2.2%. The headline number indicates the economy was much stronger the first three months of the year than many had thought. By theory, that is really bad news for bonds and mortgage rates. However, the internal inflation data showed that inflation is running much cooler than expected and below the Fed’s preferred rate. So, while the headline number looks bad for bonds, the inflation data is quite favorable. Keep in mind that economic growth is not necessarily bad news for long-term securities such as mortgage bonds. It is the factors that usually trend with a strong economy that are detrimental, such as rising inflation. Since today’s big report showed much weaker inflation readings, traders can disregard the headline GDP number. That has fueled this morning’s bond gains and improvement to mortgage pricing.