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: NEUTRAL
Mortgage rates are trending sideways this morning. Last week the MBS market worsened by -20 bps. This was enough to move rates or fees slightly higher. We saw modest volatility throughout the week.
This Week's Rate Forecast: NEUTRAL
Three Things: These are the three areas that have the greatest ability to impact mortgage rates this week. 1) Central Bank, 2) Geopolitical, 3) Trade War
1) Central Bank:
The focus will be on our Federal Reserve, but there is a lot of Central Bank action globally. Staring in the U.S., the FOMC will conclude on Wednesday and will have their Interest Rate Decision, Policy Statement, Live Press Conference with Fed Chair Powell and the release of their Economic Projects. It's the latter that may get the lions-share of attention by long bond traders. While everyone seems to be "jawboning" for a rate decrease, the simple truth is that the most recent round of economic data does not warrant a rate cut at this meeting. The market will, therefore, be looking for any direction in the policy statement or from Powell on the likelihood of a July 31st cut (which the stock market is currently pricing in). As a result, the economic projections and the corresponding "dot plot" chart will get a ton of attention to see if the aggregate bias' from individual Fed members shifts towards a cut in 2019 at all.
Besides our own Fed, we have very key Central Bank announcements out of the Bank of England and the Bank of Japan on Thursday. Rounding out the barrage of interest rate decisions are: Norway, Brazil, Taiwan, Indonesia, Philippines, and Colombia.
Brexit will remain a key focus as the list of contenders to be the next Prime Minister (and therefore the fate of Brexit) will be narrowed down to just 2 by the end of the week. Iran will continue to get a lot of attention as each week, tensions between Iran and the U.S. rise. Their announcement that they will have over the maximum allowed of uranium stockpiled in 10 days. Italy and their threat of creating its own currency and their recent friction with the EU will also be closely watched.
3) Trade War:
Every single comment from senior cabinet officials on both sides will get attention from traders as the G20 meeting is quickly approaching in Japan.
This Week's Potential Volatility: AVERAGE
Many events can move rates this week as denoted above. One of the keys to rate volatility this week will be our Fed's actions and comments about the economy and the future of rates.
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.