Uncertainty about trade, Brexit and inflation continue to push rates lower

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Published Date 12/10/2018

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 +40bps. This was enough to move rates lower last week. We saw moderate to high rate volatility last week.

This Week's Rate Forecast: Neutral

Three Things: These are the three areas that have the greatest ability to mover rates this week. 1) Geopolitical, 2) Central Banks and 3) Inflation.

1) Geopolitical: Brexit continues to be a big part of global uncertainty. The latest is the British PM May is going to delay a key vote that would cancel the Bexit agreement put forth by May. She instead will travel to Brussels to try to get more concessions which are unlikely and have caused traders to hedge more towards a "no deal" scenario. The next biggest story to continue to watch is China has issued a summons to the U.S. Ambassador over the Huawei. In France, the protestors have not been calmed with promises to "delay" a tax hike as they are the most taxed nation among the developed countries. The concern is rising that this will not only be a large economic drag on France and the EU but also shape a wave of elections that would flip several countries over to not supporting an EU at all.

2) Central Banks: The biggest event will be Thursday's European Central Bank's Policy Statement and Interest Rate Decision, followed up with a live press conference with ECB President Mario Draghi. The market is not expecting any major developments though. The Federal Reserve Bank meets next week, and while the markets still believe that there will be a rate hike at that meeting, nonstop speculation and reporting have the market shifting its consensus from as many as 3 rate hikes in 2019, down to zero rate hikes in 2019. Meanwhile, the Governor of India's Central Bank has resigned causing concern over stability in one of the largest countries in the world.

3) Inflation: We get key readings with PPI and CPI with Wednesday's Core YOY reading getting the most weight. We also get the Atlanta Fed Business Inflation Index. Over the weekend, China reported lower than expected inflationary data.

Treasury Auctions this Week:

12/11 3 year note
12/12 10 year note
12/13 30 year bond

This Week's Potential Volatility: High

Rates continue to slip lower. Fundamentally, there's a lot of fear in the markets on a geopolitical and economic front. Technically, rates continue to push the bounds. Look for rates to push lower as long as there's both geopolitical and economic uncertainty. When/if any of the above issues get resolved, look for rate volatility to spike and the current trend to reverse.

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

All information furnished has been forwarded to you and is provided by thetbwsgroup only for informational purposes. Forecasting shall be considered as events which may be expected but not guaranteed. Neither the forwarding party and/or company nor thetbwsgroup assume any responsibility to any person who relies on information or forecasting contained in this report and disclaims all liability in respect to decisions or actions, or lack thereof based on any or all of the contents of this report.

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