Market Commentary

February 24, 2020

RATE MARKETS ARE LIKELY IN FOR A WILD RIDE THIS WEEK

 

NUMBERS

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: LOWER

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

THIS WEEK'S RATE FORECAST: LOWER

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

1) and 2) Coronavirus (Covid-19) continues to get a lot of attention from the bond market. It will be the dominant force in pricing for several months as infection rates and areas continue to increase, and each day another round of factories (Most recently Samsung's smartphone plant) are closed due to the virus. Cases in Italy have shot through the roof as they have gone from 1 case 2 weeks ago, to now well over 200 cases and 7 deaths as Europe tries to stop the tidal wave from spreading to every country. Same story in Iran that went from zero cases 10 days ago to now more than 50 deaths. While the WHO attempts to continue its "damage control" and placate the markets, the global infection rate is not contained.

3) Domestic Flavor: We have some big economic releases this week. The revised 4th QTR GDP (the third time we have seen that data point) will get attention as well as Consumer Confidence and Consumer Sentiment. But it will be Friday's PCE (the Fed's key measure of inflation) report that will get the most weight by bond traders. Core PCE YOY is expected to rise, just how much will have a significant impact on rates.

Treasury Dump: Here is this week's Treasury auction schedule.

  • 02/25 2 year note
  • 02/26 5 year note
  • 02/27 7 year note

The Fed: Here is this week's speaking schedule.

  • 02/24 Loretta Mester
  • 02/25 Robert Kaplan, Richard Clarida
  • 02/26 Neel Kashkari
  • 02/27 Charles Evans
  • 02/28 James Bullard

THIS WEEK'S POTENTIAL VOLATILITY: HIGH

Rate volatility will be elevated today and likely through the week. Toward the end of the week, as noted above, we'll have some economic releases that could move rate markets. However, the markets will be paying particularly close attention to the spread of the coronavirus. Markets are nervous that the virus will have a significant global economic impact, which is helping to push rates lower. If the fear subsides, rates will likely jump on a good deal of volatility.

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