Market Commentary

Decemeber 9, 2019

THIS WEEK RATES FOCUSING ON TRADE AND BREXIT

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 -2bps. This caused rates to move sideways for the week on low volatility.

THIS WEEK'S RATE FORECAST: NEUTRAL

Three Things: These are the three areas that have the greatest ability to move rates this week. 1) Trade Wars, 2) Central Banks, and 3)Brexit.

1) Trade Wars: December 15th is fast approaching, and the markets will be very sensitive to any deal or no deal by Sunday's deadline. This issue is "highjacking" the markets and will be the primary force moving rates this week.

2) Central Banks: We have our own Federal Reserve Interest Rate Decision and Policy Statement this week. The Fed has widely telegraphed that they are going to stand pat at this meeting. Still, there are two main areas of focus: Their Economic Projections and explanation on their oversubscribed repo auctions, which have become a "thing" over the past two months. This is one of the FOMC meetings where they release their "dot plot chart," and traders will be looking closely at it to determine the future path of Fed rates. But our Fed is not the only game in town this week. The European Central Bank also has its Interest Rate and Policy Statement. What is unique about this particular meeting is that it's the first one with new ECB Chair Christine Lagarde. She has spoken several times, but this will be her first policy meeting and first voting round.

3) Brexit: There will be a popular vote on Thursday, and the results will determine how many seats in Parliament each party has, and the parties will then determine who's the Prime Minister. This election is set up as keeping PM Boris Johnson and finally conclude Brexit or go with Jeremy Corbyn.

Treasury Dump: The following is our Treasury auction schedule for the week.

  • 12/9 3 year note
  • 12/10 10 year note
  • 12/12 30 year bond

THIS WEEK'S POTENTIAL VOLATILITY: HIGH

Rate markets will be paying particularly close attention to Brexit and trade this week. If we get a meaningful phase-one trade deal and Brexit comes to pass, we could see rates jump higher on elevated volatility.

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