Market Commentary

July 6, 2020

THREE THINGS THAT CAN MOVE 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 +2 basis points.  This caused rates to move sideways on very low volatility. Rates will likely do the same this week.

THIS WEEK'S RATE FORECAST: NEUTRAL

Three Things: These are the three areas with the greatest ability to move rates this week: 1) Coronavirus, 2) Stimulus, and 3) Domestic.

1) Coronavirus: The crushing impact of the Covid-19 on our economy continues. The markets realize that the potential for a "V" shaped and quick recovery is not realistic, with new daily records of cases rolling across the US. The main focus is that 29 states now have a positive test result of over 5%, under 5% is considered the demarcation for safety. As a result, travel plans are being canceled, and states are either pausing or even rolling back their openings. The weaker the economy and the more prolonged it is, the better long bonds.

2) Stimulus: The Senate is on a planned recess from July 3 to July 20. However, headline-grabbing statements from Senators while stumping in their home states will give the market some direction on the appetite for another round of stimulus checks, business loans, and support for the state's budget shortfalls.

3) Domestic: The week's biggest reports are Monday's ISM Non-Manufacturing, Thursday's Initial Jobless Claims, and Friday's PPI Ex Food and Energy.

Treasury Auctions this week:

  • 07/07 3 year note
  • 07/08 10 year note
  • 07/09 30 year bond

The Fed: Here is this week's speaking schedule. 07/07 Raphael Bostic, Randal Quarles, Thomas Barkin, and Mary Daly.

THIS WEEK'S POTENTIAL VOLATILITY: LOW

Rate volatility continues to be very low, and it will likely be the case once again this week. Short of something utterly unexpected in the news, expect rates to move sideways through the 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