Market Commentary

January 27, 2020

COULD BE A WILD RIDE FOR RATES 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: NEUTRAL

Mortgage rates are trending sideways this morning.  Last week the MBS market improved by +30 bps.  This was enough to move rates or fees lower last week. We saw high rate volatility on Thursday of last week.  Otherwise, there was very little movement.

THIS WEEK'S RATE FORECAST: NEUTRAL

Three Things: These are the three areas that have the greatest ability to move rates this week. 1) Geopolitical, 2) Central Bank, and 3) Domestic

1) Geopolitical. The big three are the coronavirus, Brexit, and impeachment. The numbers for the coronavirus keep exponentially rising. We start the week with the "official" number of recognized cases as near 3,000. However, a personal video made by a nurse that has been at ground-zero (WuHan) since the start said that locally, its at least 9,000. Key medical centers have it pegged closer to 25K nationwide. Regardless, with an incubation period of about 14 days and over 5M Chinese traveling before the travel ban, global experts expect numbers to continue to rise globally. The Chinese have already announced that factories will be shut down for at least ten days. You have Chinese consumers holed up and not buying anything, and you have factories not producing anything, which will be a significant drag on the world's second-largest economy. On the Brexit front, Friday, January 31st, is the big date where this will finally happen. On the Impeachment front, financial markets will not respond well with the risk of an actual impeachment moving slightly higher.

2) Central Bank: The key will be this Wednesday's FOMC meeting. The market is not expecting (and it has been well-telegraphed by the Fed) that they will not be making any policy nor rate changes at this meeting. However, their discussions on the balance sheet will be critical. We also get the interest rate decision from the Bank of England.

3) Domestic: We have some significant economic releases this week that will get plenty of attention from bond traders. The biggest will be the preliminary release of the 4th QTR GDP, which is expected to remain above 2%. We also get the Core PCE YOY reading, which is THE key measure of inflation, Durable Goods Orders, Consumer Confidence, and Chicago PMI.Treasury Dump: The following are the Treasury auctions this week.

  • 01/27 2 year note, 5-year note
  • 01/28 7 year note.

THIS WEEK'S POTENTIAL VOLATILITY: HIGH

This week has the potential to be a very volatile week for markets and rates. There are a lot of unknowns that the markets are handicapping. The coronavirus and Brexit being the two big ones. Also, this week, we have several economic releases that can move markets. While today we're not expecting too much volatility in rates, this week, we could see a lot of rate movement.

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