How Rates Move:
Conventional overnment (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. Tracking these securities real-time is critical. For more information about the rate market, contact me directly. I’m among few mortgage professionals who have access to live trading screens during market hours.
Rates Currently Trending: LOWER
Mortgage rates are trending slightly lower so far today. Last week the MBS market worsened by -7bps. This caused rates to move sideways for the week. We saw low rate volatility for the week.
Three Things: These are the three areas that have the greatest ability to impact rates this week. 1) Trade War, 2) Across the Pond and 3) Domestic.
1) Trade War:
On Friday, the U.S. increased the tariff rate from 10% to 25% on $200B of Chinese goods and announced plans to include another round of tariffs on Chinese goods that have not yet had a tariff. China has now issued their response which is to tariff $60B of U.S. Goods which breaks down to 2,493 specific items, but some of these tariffs are not new. 595 items were already tariffed at the rate of 5% and will remain at that rate. 974 new items will receive a 10% tariff, and 1,078 items will move up to a new tariff rate of 20%. Also, while not an official announcement, China has allowed its media to "speculate" that other future auction could include dumping some U.S. Treasuries.
2) Across the Pond:
We have some really big economic releases this week that could change perception on global growth and inflation which is a huge factor in demand for long bonds.
• China: Retail Sales, NPS Press Conference
• Japan: Trade Balance
• Germany: CPI, GDP
• Eurozone: GDP, Employment Change, Trade Balance, CPI
• Great Britain: Unemployment Rate
3) Domestic Flavor:
The biggest report of the week is the Retail Sales report on Wednesday. It's really the only domestic release that can impact rates. But this report has seen some wild swings lately and has been viewed with a lot of skepticism by economists.
This Week's Potential Volatility: AVERAGE
Last week we saw rates and volatility remain flat. While we're headed a bit lower so far today on elevated volatility, we don't expect rates to move significantly lower for the week. However, if the trade war dramatically escalates we could see rates move lower.
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.