|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. Tracking these securities real-time is critical. For more information about the rate market, contact me directly. I’m among few mortgage professionals who have access to live trading screens during market hours.
Rates Currently Trending: Lower
According to Sigma Research mortgage bonds gained +5bps ;last week after some very large price swings later in the week. Rates moved sideways, although the trend is still bullish (lower rates) this week.
This Week’s Rate Forecast: Lower
According to Sigma Research the 10 year Treasury improved this morning, its yield at 1.80%, down from 1.83% on Friday. At 9:30 MBS were +16bp from Friday’s close (slightly lower rates). At tonight’s State of the Union address, President Obama will propose plans to increase taxes, with a $235B tax break for moderate-income workers being paid by $320B in tax increases over 10 years on the highest income taxpayers. This is likely to be a non-starter with the hostile, Republican-controlled Congress, but the proposal will put pressure on Republicans to come up with their own plan. China’s GDP rose by 7.3% in the three months ended December compared with a year earlier, a little better than the 7.2% expected by economists. Little has changed in the bond market: no inflation fears, and foreign investors are flocking to US investments for safety, as our rates are higher than all other decent economies. This inflow of foreign money supports higher prices for bonds, and thus lower rates going forward.
This Week’s Potential Volatility: Average
According to Sigma Research the risk for volatility is average this week, although the market is ripe for some potentially large price swings. There are few economic reports scheduled this week with the potential to move markets by any great amount.