Market Commentary

October 21, 2019

RATE MARKETS FOCUS ON TRADE, BREXIT, AND THE ECB 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 worsened by -7bps.  This caused rates to move sideways on low volatility for 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) Brexit, 2) Central Bank and 3) Trade War.

1) Brexit: Last week, the EU Council accepted British Prime Minister Boris Johnson's latest deal, and Johnson now needs to get his Parliament to pass it. He was unable to do that over the weekend, falling short by just nine votes. It looks like he thinks he now has the votes and is looking to have another vote on Monday. However, he faces procedural challenges with the vote.

2) Central Bank: The European Central Bank will meet on Thursday and release their latest interest rate decision and policy statement. This will be the last ECB meeting before Christine Lagarde takes over as ECB President on November 1. She has just recently been the head of the IMF.

3) Trade War: The China trade talks will continue this week with the National Economic Council. Larry Kudlow, saying that the December 15th round of tariffs could be postponed or even withdrawn if the talks continue to go well. Meanwhile, China's state-run Xinhua News Agency reported that Vice Premier Liu He told a conference in the southern city of Nanchang that the most recent trade talks with the U.S. made "substantial progress."

Treasury Auctions:

  • 10/22 2 year note
  • 10/23 5 year note
  • 10/24 7 year note

THIS WEEK'S POTENTIAL VOLATILITY: AVERAGE

There isn't any economic data due for release this week that is likely to cause rates to move. As a result, all eyes are on Brexit, ECB, and of course, the trade war with China. Any news on those three fronts can spike volatility and move rates.

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