Davos Forum, China, and Brexit loom over rate markets

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Published Date 1/22/2019

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 moving sideways so far today. The MBS market worsened by -26 bps last week. This was enough to worsen mortgage rates or fees. The market experienced moderate 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) Geopolitical, 2) Trade War and 3) Davos.

1) Geopolitical: Now that the Brexit vote has failed, PM Theresa May is working to gain support for "Plan B" from her opposition leaders to have enough votes to move forward. This is a plan that is not approved by the EU, so that may be a short trip. Domestically, we continue to have yet another week of the government shut down and each week that it drags on, incrementally it is weighing on economic growth as there is less spending by employees, etc.

2) Trade War: After last week's revelation that China was willing to spend its way out of the trade war, will there be any progress or announcements this week on the real issues at the core of the trade war?

3) Davos: The World Economic Forum is underway in Davos, Switzerland. While President Trump has canceled the trip, there are plenty of major hedge fund players, world leaders, etc. that will have sound bites for the markets.

This Week's Potential Volatility: Low

Short of something unexpected on the geopolitical front, rates should move sideways on relatively modest volatility this week. That is not to say we couldn't see some volatility given the geopolitical news cycle as of late.

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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