Market Commentary

March 30, 2020

THIS WEEK'S MARKET FOCUS: DOMESTIC DATA, CENTRAL BANKS,

AND CORONAVIRUS

 

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: LOWER

Mortgage rates are lower this morning.  Last week the MBS market improved by +333bps.  This was enough to move rates lower last week. We saw historically high rate volatility throughout the week.

THIS WEEK'S RATE FORECAST: LOWER

Three Things: These are the three areas that have the greatest ability to move mortgage rates this week. 1) Coronavirus, 2) Central Bank, and 3) Domestic.

1) Coronavirus: this continues to be the most important story since WWII for the economy. While infections continue to spread, economies are shut down, and financial markets are broken. Even when some countries like China claim to be coming back online, there is no one for them to produce and sell to. Here are this morning's headlines that are getting the attention of bond traders.

  • President Trump has extended the social distancing guidelines until at least April 30th
  • New York surpasses 1,000 deaths.
  • Spain joins Italy and the United States as countries with more reported cases than China.
  • South Korea reports a resurgence in cases.
  • Dr. Anthony Fauci appeared on CNN's "State of the Union" yesterday and declared that the current modeling projects between 100k and 200k deaths in the US alone.
  • US cases now at 150K, Deaths at least at 2,500
  • Global cases now close to 750K, Deaths at least 35K
  • Red Cross mobile naval hospital to dock in NYC this morning

2) Central Bank: Over the past three weeks, we have seen emergency measures taken by several of the G20's and some more than once. We start this week with emergency action out of the People's Bank of China as they unexpectedly cut the rate on reverse repurchase agreements by 20 basis points, the largest in nearly five years. Our Federal Reserve is looking into adjusting the amount of daily MBS purchases as well as other measures.

3) Domestic: We have a very big week for economic data. Jobs will get the most focus with the release of ADP Private Payrolls, Initial Weekly Jobless Claims, Challenger Job Cuts, Non-Farm Payrolls, Average Hourly Earnings, Unemployment Rate, and more. The NFP is expected to go negative for the first time since 2010. Also, we get important manufacturing news with Chicago PMI and ISM PMI, both expected to show and manufacturing recession. But of more importance is the ISM Services number (2/3 of our economy), which is expected to go negative for the first time since 2010.

THIS WEEK'S POTENTIAL VOLATILITY: HIGH

We are in for another wild ride in the rate markets this week. There's economic data this week that will reflect the effects of the coronavirus and will play a significant role in the direction and volatility of 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