Three Things That Can Cause Rate Volatility This Week

January 6, 2020

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: NEUTRAL

Mortgage rates are trending sideways this morning.  Last week the MBS market improved by +33bps.  This was enough to move rates or fees lower last week. We saw high rate volatility at the end of the week.

THIS WEEK’S RATE FORECAST: NEUTRAL

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

1) Geopolitical: All eyes are on Iran/Iraq, and the rest of the Middle East as tensions and threats arise. The long-bond market will likely continue to see an inflow of capital. The markets are also paying close attention to Brexit as the Labour Party (the party that lost the recent election) looks to replace its leader and how that will impact the Brexit proceedings.

2)Trade War: Last week saw an announced signing of the “Phase 1” deal for Saturday, then it was moved to January 15th. The markets will be reactive to any real confirmed date.

3) Jobs: Friday’s BLS report will get the most attention for the week as far as economic data is concerned. Bond traders will focus the most on the inflationary aspect of the report, which is average hourly earnings. Any reading on a YOY basis above 3.3% would be negative for rates.

THIS WEEK’S POTENTIAL VOLATILITY: HIGH

The main reason for the move lower in rates is due to the tensions in the Middle East denoted above. Short of a complete de-escalation in tensions between the US and Iran, which of course, is highly unlikely this week, we’ll likely see rates stay at these low levels. Market volatility will likely be elevated this week.

BOTTOM LINE:

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

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