Rate markets focus on the plunge in oil prices and coronavirus news

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Published Date 4/21/2020

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 -19 bps yesterday. This caused rates or fees to mostly move slightly higher for the day. The rates experienced moderate volatility yesterday.

Today's Rate Forecast: Neutral

Housing: March Existing Home Sales hit 5.27M vs. est. of 5.3M

Oil: The main story this morning continues to be yesterday's collapse of the May crude futures contract (the contract expires today). Traders that were long the May contract were hit hard, -$38.00/barrel to take delivery although most futures contracts don't end in the actual delivery. The June contract yesterday declined $4.60. This morning the June crude contract is trading -$4.50 at $33.13. The massive loss in demand will keep crude prices low. There is no place anymore to store excess production.

Stimulation: Senate Minority Leader Schumer says he believes the Senate will pass something today.

Coronavirus: Of course, this is driving the other two "things;" here are the headlines that are starting our week.

U.S. cases 788K, deaths 42K
Global cases 2.5M, deaths 172K
Singapore extends lockdown until the end of June
Georgia, Tennessee and South Carolina plan to start opening their economies on a limited basis today

The Fed: The biggest player on the demand side of the MBS trade, the Federal Reserve Bank of New York, will purchase MBS today. They will purchase $3.188B of 2.5 and 3.0 coupons at 9:50 am ET, and then again at 1:00 pm ET.

Today's Potential Rate Volatility: Average

Rate and overall market volatility are starting to spike a bit. The collapse in the oil market is making the markets nervous and causing a bit of dislocation. Of course, the coronavirus continues to the main thrust of market movement and volatility. Look for rate volatility to be a bit elevated again today, but nothing too extreme.

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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