Three things that can move mortgage rates this week

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Published Date 3/26/2018

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 this morning. Last week the MBS market worsened by -3bps. This wasn't enough to move mortgage rates higher. Mortgage rate volatility was low week.

This Week's Rate Forecast: Neutral

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

1) Geopolitical: While the White House has nailed down a new trade agreement with South Korea, they are working round the clock with China over intellectual property. China's threat of slapping the U.S. with tariffs on 128 different imports to China is not as important as their "veiled" threat to stop buying up our debt in the form of Treasuries. Scarier still is if they started to dump Treasuries which would drive up global interest rates.

2) Treasury Dump: The Treasury will auction off $294 billion of bills and notes this week. Its largest slate of supply ever as the Treasury is attempting to lock down as much debt as they can at slowing rising rates before the rates increase even further which would drive up the service costs on our massive debt that is set to grow even larger with the newly passed spending bill. Here is a list of Treasury note auctions this week, there are also smaller (6-month bills, etc) that are too short-term concern bond traders:

03/26 2 year note
03/27 5 year note
03/28 7 year note

3) Fed: The markets will continue to watch stories that the S.F. Fed President Williams will replace Dudley as the NY Fed which is a permanent voting position. Here are the scheduled speeches this week:

03/26 Dudley, Mester
03/27 Bostic, Quarles
03/28 Bostic
03/29 Harker

This Week's Potential Volatility: Neutral

Mortgage rates have been moving sideways essentially all year. This week, with the holiday, we expect the same with relatively low volatility. The three things above, particularly geopolitical, are the only things that are likely to move rates.

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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