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 -25bps. This was enough to move rates higher last week. Mortgage rate volatility was relatively low last 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) Singapore Summit, 2) Fed and 3) Central Bank
1.) Singapore Summit: The on-again, off-again, on-again Summit will finally take place on Tuesday. It will be a historic event with the leaders from the U.S. and North Korea meeting face-to-face for the first time. The reason we gave this the number 1 reading is because this is the one event this week that has the most question marks around it and could lead to a lot of market volatility. An agreement on denuclearization would remove a lot of market fear and may even help move the new trade agreement with China forward. But a collapse in talks would lead to increased geopolitical fear and instability.
2.) Fed: The FOMC will conclude their two days of meetings on Wednesday at 2:00 pm ET. It's widely expected that they will raise their key Fed Fund Rate by a 1/4 point. But that is not what is going to move markets. The bond market will be focusing on the release of their Economic Projections (the famous dot plot chart) to see what their future rate tightening projections are. We also get a live press conference with Fed Chair Jerome Powell right after the release of their policy statement. Hidden in all of this attention on rates, is the fact that we will also get the results of their recent round of "bank stress tests."
3.) Central Bank: Besides our own Fed, we get very key policy statements from the European Central Bank on Thursday and the Bank of Japan on Friday. The ECB has telegraphed to the markets that this is a "live" meeting and we may get some direction on the timing of ending their massive QE program. Meanwhile, the BofJ has already curbed their U.S. Treasury purchases, and we will be looking for more guidance from them.
On the Radar: This is such a big week, we have more than just our "Three Things". We also have some important domestic economic data (Retail Sales and CPI) as well as an important Brexit Vote on Tuesday. The Eurozone is set to release their most recent round of tariffs against the U.S. by July 1, but we will get several of them this week.
Treasury Auctions this Week:
THIS WEEK'S POTENTIAL VOLATILITY: HIGH
We could see a lot of mortgage rate volatility this week for the reasons stated above. The biggest factor for rates is the summit. If that goes well, we could see a lot of risk pulled out of the market and rates could jump.
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
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