Markets focus on trade and inflation this week

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Published Date 8/27/2018

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 improved by +13 bps. This may've been enough to slightly improve rates last week. There was very little mortgage rate volatility last 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) Trade, 2) Inflation and 3) Domestic

1) Trade: The U.S. and Mexico are said to be near a deal on NAFTA, and we may even see an official announcement today. This would be the first "real" movement in trade talks with any major trading partner and would signal to the bond market that deals can get done and would likely push rates higher.

2) Inflation: The Fed's preferred measure of inflation, Personal Consumption Expenditures (PCE) will be released on Thursday and is the most important economic release of the week. The YOY readings will get the most focus. The Headline is expected to remain at 2.2%, but the Core reading (ex-food and energy) will get the most weight, and it is expected to trend higher from 1.9% to 2.0%. The higher this reading is, the worse it is for pricing.

3) Domestic: We have a very big week for economic data. Besides the PCE data mentioned above, we will get our first revision to the monster 2nd QTR GDP which is expected to remain at 4.0% to 4.2%. We also get important readings from the consumer with consumer confidence and consumer sentiment. Chicago PMI on Friday will also get a lot of attention.

Treasury: Here is this week's schedule of note auctions, all of these are notes and are too short of a term to impact the longer end of the yield curve on long bonds.

08/27 2 year note
08/28 5 year note
08/29 7 year note

This Week's Potential Volatility: Average

Last week mortgage rates moved sideways with very little volatility. This week could be a bit different. We have trade talks that look to be making progress, and a lot of economic data being released that can push rates out of its tight trading range.

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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