Market Commentary

August 3, 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 +55bps.  This was enough to move rates lower last week. We saw moderate rate volatility at the end of the week.

THIS WEEK'S RATE FORECAST: NEUTRAL

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

1) Stimulus: The two sides still appear to be far apart on the next round of stimulus with liability protection, and "helicopter money" for unemployed and state governments are the main points of contention. As long as this is "twisting in the wind", MBS will continue to perform well, but once there is an agreement (most likely an agreement for an agreement), you will see MBS sell-off from our current levels.

2) Jobs: We have a deluge of jobs related data this week, culminating with Big Jobs Friday. The markets expect the unemployment rate to fall into the 10s and Non-Farm Payrolls to show new job additions of 1.65M even though every week over 1.4M new jobless claims are filed in states.

3) Coronavirus: The world is dealing with what some areas are calling the 2nd wave, and some are calling it the 3rd wave. Regardless, it is evident that areas that were thought to be "through" with the virus, like Spain and China, are obviously not, as there's no immunity that lasts more than a month or two and nations that have emerged from lockdowns are simply seeing those very same people get infected again. Meanwhile, global totals are now over 18 million, with over 250K new cases globally each and every day. The latest round or lockdowns will continue to suppress any economic recovery type, which is positive for bonds.

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

  • 08/03 James Bullard, Charles Evans
  • 08/05 Loretta Mester
  • 08/06 Robert Kaplan, Fed Balance Sheet

THIS WEEK'S POTENTIAL VOLATILITY: HIGH

Rates slide lower as the coronavirus continues to hang over the markets. Rate markets will be paying close attention to the jobs data through the week and particularly on Friday. Look for rate volatility to be slightly elevated this week due to the influx of important economic data.

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