Drifting rates staying at summertime lows

 Interest Rates, Residential Mortgage  Comments Off on Drifting rates staying at summertime lows
Jul 242017

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

We were watching the European Central Bank last week to boost the momentum of our current rally, and its message, while somewhat muddled, was just soft enough to give rates a friendly nudge. That left rates at the lows for the month and looking for a new source of inspiration.

This is a Fed week, meaning the Federal Reserve meets to discuss monetary policy, and that normally could be the inspiration. However, this meeting has no post-meeting press conference, and the consensus is the Fed doesn’t make big policy changes at such meetings.

So, markets are left to drift with the tides. Because of low summertime market volumes, rates are more susceptible to choppiness around political headlines, economic data, and position squaring by investors. We discussed the first, political headlines, last week. Resurrection of the health care bill could be a negative for rates. A Russian bombshell could be a positive. For economic data, we have the Durable Goods report and 2nd quarter GDP at the end of the week. A significant positive surprise in either report could stem our current rally, but I think that’s unlikely. Finally, we have end-of-month position squaring, which tends to provide temporary support for rallies. My conclusion is that lower rates are certainly possible this week, but if you’re floating your rate, watch for headlines that would signal a reversal of fortunes.

Rate update: Policital uncertainty means lower rates

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Policital uncertainty means lower rates
Jul 182017

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

The strongest gorilla in the room for mortgage rates still is the European Central Bank, but US political uncertainty has been pumping iron.

Back in Jun, the head of the ECB caused a quick rate spike suggesting the ECB will start tapering its asset purchases soon. While this really shouldn’t have surprised anyone, markets didn’t appreciate being faced with reality. The ECB promptly tried to walk back the idea, but markets know the taper is coming.

The ECB meets again this Thurs. Markets don’t expect a tapering announcement yet, but any shift in language will be parsed for hidden meanings. If the ECB is mum about tapering, it could add to the recent positive momentum for rates.

That momentum seems to be the result of soft US inflation data and relatively dovish comments from the Fed. The inflation data is old news, but it’s still very relevant. The Fed comments represent a shift, especially Fed Head Yellen’s Congressional testimony that the Fed is very close to what it considers a neutral policy rate, meaning the Fed is almost done hiking rates.

The new gorilla is US political uncertainty, and it could provide downward pressure on rates for the next few months. The Senate pulled the Obamacare replacement bill, which only adds question marks for the rest of this year’s Congressional agenda. Congress wants tax reform; Congress should pass a budget; Congress must deal with the debt ceiling – all of this by the end of Sep?

Rate update: European tantrum boosts US rates

 Interest Rates, Residential Mortgage  Comments Off on Rate update: European tantrum boosts US rates
Jul 102017

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Last week’s jobs report was surprisingly strong, but bond markets hardly noticed. Instead, they seem to be laser-focused on the prospects that the European Central Bank will curtail its asset-purchase program.

It may seem odd that something seemingly so distant could impact US mortgage rates, but that’s the effect of interconnected global markets. The yield on the German Bund, considered the safest European debt, jumped right after the ECB announcement. US Treasury and mortgage rates also hopped on board the panic train, but the distance limited the damage.

The ECB announcement indicated that at some point the ECB would have to stop pumping money into the EU economy. The ECB immediately tried to back-peddle to calm markets, but the damage was done. Markets know the party eventually will end, and the ECB must be thinking about the end, or it wouldn’t have made the statement.

For those wanting rates to fall again, the glimmer of hope is recent inflation data. The Federal Reserve’s target rate is 2%. Inflation hasn’t been that high in years, and recent data shows inflation heading down again. This may give the Fed a reason to pause its plans to hike rates and shrink its balance sheet, which would be positive for rates. Markets will be listening carefully to Fed Head Yellen this week during her Congressional testimony for any signs the Fed’s plans may be changing.