Ryan's Rate Commentary

  • How Rates Move:

    Conventional overnment (FHA and VA) lenders set their rates based on the pricing of Mortgageand G-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 improved by +12bps. This was not enough to significantly improve rates last week. Mortgage rates stayed in a very tight channel throughout the week.

    This Week's Rate Forecast: NEUTRAL
    Three Things: These are the three things that have the greatest ability to impact your mortgage rates this week. 1) Trade wars, 2) Geopolitical and 3) Inflation.

    1) Trade Wars:
    This story continues to suck all of the oxygen out of the room. The initial tit-for-tat $34B in tariffs with China is less of a concern to long bond traders than what comes next. Does this escalate to a $200B war? Is there some agreement on some items that decrease the $34B down to $10B? Will progress be made on other fronts (NAFTA, Europe, etc).

    2) Geopolitical:
    A lot going on this week with Brexit taking on center stage as their Brexit Secretary just quit. President Trump will be traveling to the U.K. to meet with Prime Minister May and will be at the NATO summit on Wednesday and Thursday. Trump is also expected to announce his appointment for the Supreme Court, and the bond market will react based upon if they are pro-business/less regulation or not.

    3) Inflation:
    This week's Consumer Price Index will get a lot of attention as the YOY reading is expected to climb to 2.3%. An important story will be the impact of tariffs on raw material costs (PPI) and if the higher costs have transferred to the consumer in the form of higher prices.

    Treasury auctions this week:
    • 07/10 3 year note
    • 07/11 10 year note
    • 07/12 30 year bond

    The Fed:
    • 07/09 FOMC Neel Kashkari, ECB Draghi
    • 07/11 Bank of Canada Interest Rate Decision, ECB Non-Monetary Meeting, Bank of England's Carney and FOMC John Williams
    • 07/12 FOMC Patrick Harker
    • 07/13 FOMC Raphael Bostic

    This Week's Potential Volatility: AVERAGE
    Markets have shrugged off the trade war news. If the trade tensions escalate, we could see it start to affect markets in a more meaningful way. Otherwise , once again look for rates to move sideways with relatively low 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.

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