“Prediction is very difficult, especially about the future.”
-Neils Bohr
I feel ya, Neils. On Monday I said that I thought that mortgage rates would maintain their current levels throughout the week, given the lack of important events or data on the calendar. Throw that out the window. It looks as though Treasuries were overbought. Bonds sold off significantly on Monday and Tuesday, with yields rising from somewhere around 1.38% to as high as 1.53% Tuesday afternoon. A subsequent overnight rally that might have been caused by some weak economic data out of Asia brought yields back down to 1.47% as of writing. Perhaps a pause in the sell-off, perhaps the new level for the time-being.
Mortgage also sold off yesterday, and are slightly in the red this morning. Mortgage rates were getting close to record lows – that is no longer the case. In addition to Treasuries being overbought, rumors abound that central bankers (not ours, but likely the Bank of England or Bank of Japan) are going to provide more stimulus to the markets soon. This is driving money into stocks and out of bonds, and that is contributed to the sell-off as well.
The takeaway: mortgage rates are still low, just not as low as they were a few days prior. On a historical basis, rates are extremely low. If you have a mortgage, I think it absolutely makes sense for you to see if you can save money on your monthly payments or reduce the term of your mortgage. If you’re buying a house, it’s still a very good time to lock in a low rate for the long term.
Click here to get today’s latest mortgage rates.
Recent economic data:
As we’ve noted in this space for quite some time, U.S. markets appear to be almost wholly divorced from the influences of domestic data lately. This would be an academic exercise were it not for the fact that the Fed is certainly monitoring domestic data for the purposes of setting monetary policy. I think were it not for the ongoing turmoil, the Fed would have hiked (again) already. Then again, if wishes were horses, beggars would ride. We press on:
- The job openings and labor turnover survey for May (issued on Tuesday) showed that job openings were down by 500k, coming in at a level of 5.5M, down from April’s (upwardly revised) reading of 5.845M. The “quits” rate was unchanged – people are not leaving their jobs at an increased pace, which would indicate that there is still slack in the labor market. The general lack of wage growth would suggest something similar. In any case, this is backward-looking data that doesn’t give us any particular idea where things are heading.
- The Atlanta Fed’s GDPNow forecast for second quarter GDP growth is now at 2.3%, down a tick from the prior prediction of 2.4%. Not a bad number, but less impressive when you take into account the sluggish 1.1% first quarter growth.
- The EIA petroleum status report showed that crude inventories fell last week while gas and distillate inventories rose. Meanwhile OPEC is increasing production in an effort to drive some producers out of the market.
- There is a 30-year Treasury auction at 1pm.
- The Fed’s Beige Book comes out at 2pm.
Again, none of this is likely to have any real immediate impact on the market (with the exception of the Treasury auction, which could push yields a little bit one way or the other). As part of the bigger picture, I don’t think any of the above is particularly clarifying, unfortunately. Thursday and Friday’s inflation data and the retail sales report that is due out on Friday look to be a little more influential.
Some Fed thoughts:
Let’s preface this by saying that the Fed came into the year calling for 3-4 rate hikes, and has thus far delivered one. As mentioned above, I think they would have already hiked a second time were it not for global economic instability. Anyway, here are the probabilities of a Fed rate hike at the FOMC meetings through the end of the year (probabilities based upon Fed Fund futures prices):
- July: 0%.
- September: 12%, trending downward from yesterday.
- November: 12%, trending downward from yesterday.
- December: 32%, trending downward from yesterday.
The market doesn’t seem to think there is much chance of a hike in the near future. Most recent Fedspeak seems to affirm this. Tim Duy of Tim Duy’s Fedwatch has a nice recap of recent Fedspeak here. The takeaway, in general, is that there is a rift between the hawks and the doves, and that rift seems to be widening.
Yesterday, St. Louis Fed President James Bullard reiterated that we would only need one rate hike in the near term, sayings that “if there was rapid job growth that seemed to be associated with very high economic growth, in that situation we might have to adjust a little bit.” Bullard went on to say that fiscal policy also needs to be focused on growth if the U.S. economy is to continue to improve: “We badly need a growth agenda. We’re talking, but I think it’s falling on deaf ears.”
Long story short: don’t expect a rate hike in the near future, especially with the continued foreign turmoil.
It’s time to see if you can save money. Contact us now.
What’s the takeaway for rates this week?:
I doubt that rates will change significantly in the coming days (although I was wrong on Monday, so take it with a grain of salt). I’ll say again what I said at the top: rates are historically low. If you have a mortgage, you absolutely owe it to yourself to see if you can refinance into a lower rate or potentially reduce the term of your loan. Everyone’s financial situation is different, but over the past week I’ve heard of some borrowers getting pretty crazy deals with no closing costs. It costs you nothing other than time to make a phone call.
If you’re purchasing a home, you chose the optimal time to do so, rate-wise.
Don’t wait for rates to rise. Start your mortgage process now.
One more thing:
While not immediately pertinent, keep an eye on things over in the South China Sea. If you weren’t aware, China has been building artificial islands in the South China Sea and then claiming territory there. Yesterday the Hague ruled that China’s territorial claims are invalid. In turn, there are questions as to whether or not China will heed the ruling. This, in combination with the potential that Japan may try to revise the pacifist articles in its Constitution, could ratchet tensions in a historically contentious region. Hopefully all involved parties step back a bit, but this could become an issue in the coming months.
Notable events this week:
Monday:
- Labor Market Conditions Index
- Treasury auctions
- Fedspeak
Tuesday:
- Job Openings and Labor Turnover Survey
- Treasury auctions
- Fedspeak
Wednesday:
- EIA Petroleum Status Report
- Treasury auctions
- Beige Book
- Fedspeak
Thursday:
- Weekly Jobless Claims
- Producer Price Index – Final Demand
- Fedspeak
Friday:
- Consumer Price Index
- Retail Sales
- Empire State Manufacturing Survey
- Industrial Production
- Fedspeak
from Total Mortgage Underwritings Blog http://ift.tt/29RE45p
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