Rates were down .125% to end last week, regaining half of the .25% rise from the week before. As the last WeeklyBasis noted: “Jobs would have to be worse than already-low expectations” for rates to improve, and that’s exactly what happened, with only 18k non-farm payrolls created vs. 110k expectations.
Safer assets like mortgage bonds are again rallying on an increasingly anxious market outlook, and rates drop when bond prices rise on rallies. Below is this week’s rate outlook, and tips on locking rates in this volatile environment.
Why Rates Dropped July 5-8
As the U.S. runs low on fiscal and monetary stimulus options, all asset classes including mortgages are getting even more volatile. When economic data are even slightly better, mortgage bonds sell and rates rise. Worse data have the opposite effect.
As daily data are released, rate markets swing wildly. Here’s an example of the last two weeks:
Early last week, rates were holding onto increases from the week of June 27 to July 1 when stocks rallied and bonds sold (pushing rates up) as Greece politicians agreed on budget cuts and tax hikes needed to secure the next payment in their bailout. But July 5, Moody’s cut Portugal’s debt to junk, reminding markets that the European debt crisis is far from over, and this helped rates drop.
Then mortgage bonds (and rates) were relatively steady after the Institute of Supply Management reported that June non-manufacturing activity was similar to May, and inflation is moderating in the U.S. non-manufacturing sectors.
And of course Friday’s BLS jobs report noted above caused a massive mortgage bond rally which caused rates to end net down .125%.
Interestingly, sentiment about the ISM non-manufacturing report has now changed to more negative.
Outlook for July 11-15 Week
Next week’s economic calendar highlights include consumer and business inflation, retail sales, New York region manufacturing, and $66b in Treasury auctions as follows: $32b 3yr Notes 7/12, $21b 10yr Notes 7/13, $13b 30yr Bonds 7/14.
Wednesday, we’ll see the release of the June 22 FOMC meeting minutes, and now that Fed chairman Ben Bernanke is doing post-FOMC press conferences, these minutes are less likely to reveal anything markets haven’t yet heard.
More relevant to markets will be Bernanke’s semiannual Congressional testimony on the state of U.S. monetary policy Wednesday and Thursday. We can expect that he’ll be grilled on dismal U.S. employment conditions and other market moving topics.
Volatility and Rate Locks
Rates are likely to hold current levels next week because good economic news is fleeting right now.
As we enter further into uncharted economic territory, market volatility will continue and so will wild daily/weekly swings in mortgage rates.
When it comes to locking rates in this kind of environment, remember that rate locking strategy isn’t like investing strategy. With investing, the goal is sticking with a plan and adjusting slightly through the short-term bumps. With rate locking, it’s more of a trading exercise.
You have to pick a high-end target that you can’t or won’t go above, and be ready to act on that whenever it’s there.
Since rates change throughout each trading day, make sure your mortgage advisor knows of this target so they can act as markets dictate.