Mortgage rates moved higher late last week mostly due to waning political risks in Italy. To be honest, I only really put the jobs data in the headline because the mighty Employment Situation Report is a perennial market mover - especially for rates. In Friday's case, however, bond market trading levels (the stuff that dictates rates) ended the day right where they were just BEFORE the jobs report came out.
When it comes to the US bond market and this week's volatility, Italian politics have been at center stage. Today was something of a closing act in that regard as the Italian President finally confirmed a new Finance Minister. Failure to do so had previously threatened to send the country back to elections, and that was seen as a major risk. Bottom line: avoiding snap elections meant the defusing of those risks, and that wasn't good for rates.
If you're wondering "WHY" such a thing isn't good for rates, the next few sentences are for you. Bonds (which drive rates) thrive on risk. Scared investors park money in safe-haven bonds like US Treasuries. Mortgage-backed-securities (MBS) also benefit. More demand for these bonds means their prices rise and their yields fall. Falling yield is the same as falling rates--at least by the time lenders convey that reality by updating their published rate sheets.
The move higher means we ended the week right in line with last Friday. This week presents a sort of a lull, with the big Fed Announcement coming out the following week. During this time, rates will be "deciding" if they're able to hold under this week's ceiling. This is most easily tracked in terms of 10 year Treasury yields due to the variability between mortgage lenders. We're looking at 10 year yields around 2.94% as an important battleground. If we stay below, that could mean a broader, slower, positive shift is in the works, but please be very aware that such a shift is the underdog on most scorecards in 2018.
Courtesy of Rick Lombardo 310.435.7439, Rick.Lombardo@grarate.com, VP of Mortgage Lending at Guaranteed Rate.
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