Market Commentary

For the week of May 20, 2019

MARKETS TURN FOCUS TO THE FED AND GEOPOLITICAL CONCERNS

 

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 to slightly higher this morning.  Last week the MBS market improved by +20bps.  This may've been enough to move rates or fees slightly lower last week. We saw moderate rate volatility throughout the week.

THIS WEEK'S RATE FORECAST: NEUTRAL

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

1) Fed: We are fast approaching the June FOMC meeting, and the bond market will be focused intently on the collective message that this week's talking feds send out. We get the Minutes from the last FOMC meeting. We will also get the Minutes from the last ECB meeting and have a speech from ECB President Draghi. Here is the very packed schedule for the week:

  • 05/20 Raphael Bostic, Patrick Harker, Richard Clarida, Jerome Powell and the Chicago Fed's National Activity Index
  • 05/21 Raphael Bostic, Charles Evans and Eric Rosengren
  • 05/22 James Bullard and the Minutes from the last FOMC meeting
  • 05/23 Robert Kaplan, Tom Barkin, Raphael Bostic, Mary Daly and the Fed's Balance Sheet

2) Trade War: China says that it is in "no rush" to resume trade talks but has invited U.S. Treasury Secretary Mnuchin back to China. Meanwhile, on the Huawei front, Google's Alphabet has announced that it will cut off Huawei Mobile's access to most of its Android operating system offerings. Also, German chipmaker Infineon Technologies said it would suspend deliveries to Huawei.

3) Geopolitical: Tensions continue to escalate between the U.S. and Iran and will be closely watched. But it's Europe that may have a more immediate impact. The EU Parliament will start four days of elections on Thursday.

THIS WEEK'S POTENTIAL VOLATILITY: AVERAGE

The bond market will be paying close attention to the geopolitical events and the overall tone of the Fed speakers. We're not expecting rates to push out of the current tight range unless something unexpected happens geopolitically.

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.