Rate Lock Advisory

Sunday, April 6th

This week is likely to be another volatile one for the financial and mortgage markets. Scheduled activities don’t begin until Wednesday afternoon, but we are still dealing with the market fallout from last week’s tariff announcements where the Dow lost over 3,900 points and the Nasdaq shed over 2,000 points Thursday and Friday. The bond market benefited as investors sought safety from the massive stock sell-off. Will stocks resume their selling tomorrow for a third straight day of heavy losses, possibly drawing more funds into bonds? This evening’s futures signals another day of big losses on Wall Street, so at the moment the safe bet is yes unless something unexpected happens overnight.

Some analysts fear another big stock sell-off tomorrow, something to the likes of Black Monday that happened on October 19, 1987. There are so-called circuit breakers in the markets now that didn’t exist back in 1987 that could prevent such a drastic crash in one day. However, there is plenty of concern that tomorrow will be another ugly day for stocks because the pattern and events over the past couple of days are similar to what transpired leading up to Black Monday.

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Bonds

Market Closed

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Dow

Market Closed

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NASDAQ

Market Closed

Mortgage Rate Trend

Trailing 90 Days - National Average

  • 30 Year Fixed
  • 15 Year Fixed
  • 5/1 ARM

Indexes Affecting Rate Lock

High

Positive

Tariff News

While stock selling is usually good news for bonds and mortgage rates, and we could see bonds improve tomorrow if the sell-off extends into tomorrow’s session, something happened late Friday that should not be overlooked. We have previously warned multiple times over the past few weeks in our report that the long-term impact tariffs will have on bonds is negative because they will fuel inflation. Inflation is the number one nemesis of the bond market since it erodes the value of a bond’s future fixed interest payments, causing investors to sell the securities at a discount. This pushes their yields higher and mortgage rates tend to track bond yields.

High

Negative

Fed Talk

What happened was during his Friday speaking engagement, Fed Chairman Powell pretty much reiterated what we warned in our Friday morning report. He reminded listeners that the Fed only has mandates to control inflation and maximize employment. There is no mandate to stabilize the stock markets. He warned that tariffs are highly likely to push inflation higher in the short-term and there is uncertainty about the long-term. If inflation is a concern in the Fed’s mind, they are less likely to make another cut to key rates anytime soon. This is especially true since Friday’s Employment report showed decent growth in the sector. Rising inflation and strong employment give the Fed no reason to lower key interest rates. This is why we saw bonds give back their early gains before the end of the day, leading to widespread intraday increases to mortgage rates Friday afternoon.

Medium

Positive

Stock Influences

There is nothing scheduled for tomorrow or Tuesday, allowing bonds to be driven mostly by stock movement and tariff headlines during the first couple of days. The week has only three monthly economic reports set for release, but two of them are highly important to the markets. We will also get the minutes from last month’s FOMC meeting and two Treasury auctions of long-term securities midweek. There are also a handful of Fed-member speaking engagements that will watch even though none appear likely to have a direct impact on mortgage rates.

Medium

Unknown

Treasury Auctions (5,7,10,20,30 year)

Events begin Wednesday at 1:00 PM ET when the results of the day’s 10-year Treasury Note auction are announced. A strong demand from investors would be good news for bonds and mortgage rates. It will be interesting to see if investors are drawn to the securities out of concern about a potential recession and stock losses, or if worries about inflation will keep them away. This scenario will be repeated Thursday afternoon when 30-year Bonds are sold.

Medium

Unknown

FOMC Meeting Minutes

Wednesday afternoon also has the minutes from last month’s FOMC meeting. Market participants will be looking at them closely as they give us insight to the Fed's current thought process and individual Fed member opinions regarding future monetary policy moves, particularly when they may start lowering key rates again. Any surprises in the 2:00 PM ET release could cause afternoon volatility in the markets Wednesday with possible changes in mortgage pricing.

High

Unknown

Consumer Price Index (CPI)

March’s Consumer Price Index (CPI) will be posted at 8:30 AM ET Thursday. This index is one of the most important pieces of data the bond market gets each month since it gives us an idea of how strong inflationary pressures are at the consumer level of the economy. There are two portions of the report that analysts watch- the overall reading and the core data. The core data carries more significance to market participants because it excludes more volatile food and energy prices. Forecasts show the overall rising 0.1% and the core reading up 0.3% with annual readings slipping to a slower pace. If the report shows prices are rising faster than expected, especially on an annual basis, we should see bond prices fall and yields move higher to cause an increase in mortgage rates.

High

Unknown

Producer Price Index (PPI)

The second highly important report will be March's Producer Price Index (PPI) at 8:30 AM ET Friday morning. It is the sister release of Thursday's CPI, but measures inflationary pressures at the wholesale level of the economy. Analysts are expecting to see a 0.2% increase in the overall reading and a 0.3% rise in the core reading. As with the CPI, weaker readings would be good news and may push mortgage rates lower.

Medium

Unknown

Univ of Mich Consumer Sentiment (Prelim)

The initial University of Michigan's Index of Consumer Sentiment for April will close out this week's calendar late Friday morning. This index will give us an idea of consumer confidence that hints at consumers' willingness to spend. Recent related releases have indicated consumers are less confident about their own employment and financial, meaning they are less apt to make large purchases in the near future. This is relevant because consumer spending makes up over two-thirds of the U.S. economy. Good news would be a sizable decline from March's 57.0 reading. Analysts are expecting to see a reading of approximately 55.0, signaling slightly weaker consumer spending activity may be coming in the near future. The lower the reading, the better the news for rates.

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Unknown

none

Overall, Wednesday’s CPI release makes it the most important day of the week, although tomorrow could also bring a sizable move in rates due to the expected stock sell-off. No day is likely to be calm for rates due to the scheduled events and tariff headlines possible at any time. We saw a nice downward move in rates last week, but please proceed cautiously if still floating an interest rate and closing in the near future. It is difficult to recommend locking a rate now since tomorrow’s open should be beneficial to mortgage shoppers. That said, it would be prudent to do so after tomorrow’s early pricing is issued since inflation worries from the tariffs are already starting to affect bond trading and will likely become more prevalent in the immediate future.

Float / Lock Recommendation

If I were considering financing/refinancing a home, I would.... Float if my closing was taking place within 7 days... Float if my closing was taking place between 8 and 20 days... Float if my closing was taking place between 21 and 60 days... Float if my closing was taking place over 60 days from now... This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.