Market Commentary

October 7, 2019

THREE THINGS THAT COULD SPIKE RATE VOLATILITY THIS WEEK

THIS WEEK'S MORTGAGE RATE SUMMARY

HOW RATES MOVE:

Conventional and Government (FHA and VA) lenders set their rates based on the pricing of Mortgage-Backed Securities (MBS) which are traded in real time, all day in the bond market. This means rates or loan fees (mortgage pricing) moves throughout the day, being affected by a variety of economic or political events. When MBS pricing goes up, mortgage rates or pricing generally goes down. When they fall, mortgage pricing goes up.

RATES CURRENTLY TRENDING: LOWER

Mortgage rates are trending slightly lower so far today.  Last week the MBS market improved by +40 bps on moderate to high volatility.  This was enough to improve mortgage rates or fees. 

THIS WEEK'S RATE FORECAST: NEUTRAL

Three Things: These are the three areas that have the greatest ability to impact mortgage rates pricing this week. 1) The Fed, 2) Trade War and 3)Geopolitical

1) The Fed: We will hear from Fed Chair Powell no less than three times this week. We will also get the release of the Minutes from the last FOMC meeting and a barrage of talking feds all week.

  • 10/07 Powell, Kashkari
  • 10/08 Powell, Evans, Kashkari
  • 10/09 Powell, George, FOMC Minutes
  • 10/10 Mester
  • 10/11 Rosengren, Kaplan

2) Trade War: Chinese Vice Premier Liu He is due to visit Washington for talks with meetings expected to take place on Thursday and Friday. According to news reports, the Chinese are "increasingly reluctant to agree to a broad trade deal" and that the "range of topics they're willing to discuss has narrowed considerably." The same reports claim that Vice Premier Liu He is likely to bring an offer that won't include commitments on reforming Chinese industrial policy or government subsidies that have been the target of longstanding US complaints. Direct reports from the White House and Chinese delegation could have a huge impact on market sentiment later this week.

3) Geopolitical: The three-ring circus of the impeachment "inquiry" will get a lot of attention as well as the drama from across the pond with Brexit negotiations. Both have seen massive media coverage amid new developments; both will feature heavily this week.

Treasury Auctions this Week:

  • 10/08 3 year note
  • 10/09 10 year note
  • 10/10 30 year bond

THIS WEEK'S POTENTIAL VOLATILITY: HIGH

We shouldn't see too much rate volatility today, but this week could be a different story. Rate markets will be focusing on a few things; the trade war, Brexit, Fed Chair Pawell's speeches, and potentially impeachment news. If anything happens outside market expectations, which is entirely possible, rates are likely to experience increased volatility.

If you are looking for the risks and benefits of locking your interest rate in today or floating your loan rate, contact your mortgage professional to discuss it with them.

Source: TBWS