Wednesday’s bond market has opened relatively flat despite economic news that was highly unfavorable for bonds and mortgage pricing. The stock markets are showing gains with the Dow up 49 points and the Nasdaq up 13 points. The bond market is currently down 3/32, but I don’t believe we will see to much of a change in this morning’s mortgage rates.

January's Housing Starts was the first of this morning’s three pieces of economic data. It revealed a sizable jump in starts of new home construction, indicating future housing sector strength is possible. The 14.6% increase in housing starts greatly exceeded forecasts, but fortunately this data doesn’t usually have a significant influence on the markets and mortgage rates or we would have seen a noticeable increase in this morning’s pricing.

The second and most important of the three was January’s Producer Price Index that measures inflationary pressures at the producer, or wholesale level of the economy. The Labor Department reported that the overall PPI reading rose 0.8% last month and that the more important core data rose 0.5%. The overall reading was slightly higher than analysts’ expectations, but the core data that excludes more volatile food and energy prices was much higher than the 0.2% that was forecasted. This was the 7th consecutive month of increases in the overall reading and the largest monthly increase in the core data since October 2008. However, market traders seem to be okay with the news, probably due to particularly large spikes in pharmaceutical and plastic costs that skewed the readings.

In a bit of good news for the bond market, January's Industrial Production report showed a 0.1% decline in output at U.S. factories, mines and utilities. This was good news for the bond market because it points towards a weakening manufacturing sector that eases economic growth concerns. It helped off set the housing and inflation news that was negative for bonds and rate.