Less cash pushing into bonds

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Published Date 2/13/2018

Today'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 moving sideways so far today. The MBS market improved by -7 bps yesterday. This probably wasn't enough to improve mortgage rates or fees. Rates experienced moderate volatility yesterday.

Today's Rate Forecast: Neutral

Domestic: There are no major domestic releases today that have the gravitas to impact mortgage rates.

Small Business Optimism: The NFIB Index for January shot up to 106.9 vs 104.9 in December. Six of the ten components of the index posted increases, with earnings trends registering the greatest improvement by jumping 11 points but remaining in negative territory and the second weakest component reading at a net minus 4 percent. Expectations that the economy will improve rose 4 points to 41 and plans to increase inventories also rose 4 points to 3. Current job openings rose 3 points to 34, as more than a third of small business owners reported job openings they could not fill. Rounding out the gainers were capital outlays, which rose 2 points to 29.

Fed: Today, we hear from Cleveland Fed President Loretta Mester (voting member).

Bond Market: Less and less cash going into bonds. Lower demand = higher rates. Fund managers have sliced their bond allocations to the lowest level in 20 years as fears grow that the sector poses the biggest threat to markets. Along with reducing their fixed income exposure, 60 percent of professional investors also say inflation and troubles overall in the bond market pose the biggest threat of a "cross-asset crash," according to the February Bank of America Merrill Lynch Fund Manager Survey.

Respondents say they've reduced their bond portfolios to a net 69 percent underweight, the lowest since the survey began two decades ago. The survey polled 196 panelists with $575 billion in assets under management.

Japan: Machine Tool Orders increased from 48.3% in December to 48.8% in January.

Great Britain: Retail Prices YOY increased by 4.0% vs est of 4.1%. PPI YOY 4.7% vs est of 4.2%, CPI YOY 3.0% vs est of 2.9%.

Today's Potential Rate Volatility: Average

Mortgage rate volatility should be a bit subdued today compared to recent events. However, tomorrow, with the CPI and retail sales data, we couple see high rate volatility.

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

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