Three reasons rate volatility could spike this week

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Published Date 8/24/2020

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 so far today. Last week the MBS market improved by +34 bps. This was enough to move rates or fees slightly lower last week. We saw moderate rate volatility through the week.

This Week's Rate Forecast: Neutral

Things: These are the three areas that have the greatest ability to impact rates this week. 1) Cowboys, 2) Mother Nature, and 3) Domestic.

1) The Cowboy State: No, not the Dallas Cowboys. The Cowboy State, Wyoming. As the Kansas City's Federal Reserve hosts a "virtual" version of their Jackson Hole, WY Economic Symposium. Federal Reserve Chair Jerome Powell will speak on Thursday at 9:10 am ET. The bond market will be focused on discussions revolving around interest rates, Fed policy, and the group-think on the timing of an economic turnaround.

2) Mother Nature: Two hurricanes are going to hit the US this week, which will be disruptive to the economies of the Southern portion of the US. We also have continuing COVID cases spiking on every single college campus that allowed students back is also very alarming and could push a real economic recovery past 2021.

3) Domestic: We get some big data points this week with the Fed's key measure of inflation (PCE), the revised GDP (-32.9%), Durable Goods, and Chicago PMI, along with key readings on the consumer with both Consumer Confidence and Consumer Sentiment.

Treasury Dump: Here is this week's Treasury auction schedule

08/25 2 year note
08/26 5 year note
08/27 7 year note

This Week's Potential Volatility: Average

Everything denoted above has a strong likelihood of moving rates and spiking volatility. Rate markets are starting to trade in a tight channel; however, there are many opportunities for rate markets to be surprised and push higher or lower. Pay particularly close attention to the economic numbers coming out Thursday and Friday.

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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