Three things that can move rates this week

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Published Date 11/13/2018

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 worsened by -7 bps last week. This wasn't enough to worsen mortgage rates or fees. The rates experienced moderate volatility last week.

Today's Rate Forecast: Neutral

Three Things: These are the three things that have the greatest ability to impact mortgage rates this week: 1) Trade War, 2) Geopolitical and 3) Domestic.

1) Trade War: NAFTA is still not complete, and new auto tariffs are being floated around to help push everyone to move forward. Canada has also asked for an exception on steel and aluminum tariffs which are not part of the NAFTA agreement. Separately, there is cautious optimism over the U.S. vs China trade war as the Chinese Vice Premier Liu He, is planning to visit the US this month to work on resolving the ongoing US-China trade dispute with Treasury Secretary Steven Mnuchin.

2) Geopolitical: Italy is still a major concern as one of their top banks had to have an emergency bailout this weekend and Italy's government is vowing to continue to go against EU rules and keep their budget as-is. Meanwhile, a hard-Brexit seems like a foregone conclusion as both situations spell out significant instability across the pond. Israel and the Hamas have been going at it in the Gaza strip that could escalate into a full-scale war after both have launched hundreds of rockets at each other over the weekend.

3) Domestic: We hear from several key Federal Reserve governors including Fed Chair Powell. The biggest domestic releases this week will be our CPI as traders want to see if last week's big spike in PPI readings also shows up on the consumer side of the equation. Retail sales will also get plenty of attention.

Fed:

11/13 Neel Kashkari, Mary Daly
11/14 Randal Quarles, Jerome Powell and Robert Kaplan
11/16 Charles Evans

Today's Potential Rate Volatility: Average

Mortgage rates are likely to continue in the same tight channel. There are a few things that could increase rate volatility. Trade war tensions could be a factor, but the Middle East is a significant wild card as tensions heat up.

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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