Mortgage Rates Brace For More Volatility This Week

Mortgage rates are trending slightly higher this morning.  Overall, we saw last week that even though the MBS market improved only by a slim margin, we saw big mortgage rates swings throughout the week.  Last week markets had very little significant news or data, this week the economic calendar has a number of key reports which could see some more volatility.

The bond market moved off of their best levels last week after President Trump simply mentioned an announcement over tax reform over the next couple of weeks. This demonstrates that point that with reduced regulation and generally favorable policies towards economic growth, the bond market will react strongly to any details from his administration. He starts the week off meeting with the Canadian Prime Minister to discuss NAFTA further.

This week we have Janet Yellen speaking which usually takes the forefront on any news during the week – but with all that is surrounding President Trump these days, this is playing second fiddle.  Right now, the President has more influence on future growth/inflation/rate expectations than Fed policy does. With Tarullo's retirement, Trump now can nominate 3 vacant seats on the Federal Reserve Board of Governors, followed by Yellen in Feb 2018 and Fischer in June 2018. In other words, he can change 5 seats in the Fed in the near term. That means the bond market is looking at the current Fed members and saying "sure - but you will not even be here next year to follow through with your policies". Regardless, we get a lovely Valentine's Date with Fed Reserve Chair Janet Yellen on Tuesday as she gives her semi-annual testimony in front of the Senate. Others follow throughout the week.

Unlike last week, we have a lot of domestic economic data to digest this week. We get key inflation measures with both PPI and more importantly CPI. The biggest report of the week is Wednesday's Retail Sales data.

A trend that started in the later part of 2016 is that key holders of our debt (U.S. Treasuries) have been lightening up (dumping) their positions. Why? Because the expect stronger global growth, and bonds/notes that are interest rate sensitive are not a good place to be if that is your expectation. China was the number one holder of U.S. Treasuries but sold off, making Japan the number one holder, but Japan sold off as well in December. They lowered their holdings to a level not seen since 2013. We get key TIC data this Wednesday and it could have an influence on mortgage rates.

As I noted above, we have several events that could move mortgage rates.  Most of the outward focus from the media and investors currently centered on Trump, Yellen and the US - but Europe is increasingly worrisome. Look for volatility throughout the week but particularly Tuesday as the markets digest Janet Yellen's comments. Currently at 11:00AM, we have no change in the 10yr (2.44%), but MBSs have been hovering in negative territory all morning.