U.S mortgage rates rise, while Treasury yields fall as lenders begin to price in risk premiums amidst the economic uncertainty.
Mortgage rates moved northwards in the week ending 23rd April, with mortgage rates up just twice in 5-weeks. In the previous week, mortgage rates had fallen by 2 basis points to 3.31%.
While the downward trend failed to continue, 30-year-fixed rates remained close to record lows.
Compared to this time last year, 30-year fixed rates were down by 87 basis points.
30-year fixed rates were down by 161 basis points since November 2018’s most recent peak of 4.94%.
Economic data was on the heavier side in the week. Key stats included the weekly jobless claims and April prelim private sector PMI numbers.
Both sets of numbers disappointed. In the week ending 17th April, initial jobless claims increased by another 4.427m. Yet another jump in unemployment sent the number of unemployed hurtling to levels last seen in the Great Depression.
Things were not much better across the services sector, with the lockdown sinking the PMI from 39.8 to 27.0 in April.
The manufacturing sector contraction was less severe, with the PMI falling from 48.5 to 36.9 but it was of little consolation.
From the housing sector, March existing home sales slid by 8.5%, with new home sales tumbling by 15.4%. There had been hopes of a bounce-back in housing sector activity, supported by current mortgage rates. The surge in unemployment, however, raises some concerns over the near-term outlook.
Economic uncertainty, stemming from particularly dire economic data led to a fall in 10-year Treasury yields in the week.
The uptick in mortgage rates, however, had less to do with U.S Treasury yields and more to do with the setting of rates by lenders. Lenders have begun to price in a risk premium into mortgage rates that have led to a break in the correlation between yields and mortgage rates.
10-year Treasury yields also fell in the week in response to WTI’s May Futures sliding into negative territory early in the week.
The weekly average rates for new mortgages as of 23rd April were quoted by Freddie Mac to be:
According to Freddie Mac, mortgage rates have stabilized over the last few weeks. The markets continue to search for direction amidst the doom and gloom of the economic data.
While both fiscal and monetary policy support has delivered upside to the financial markets, Freddie Mac sees a deep economic contraction weighing ‘amidst the uncertainty about the recovery formation’.
For the week ending 17th April, rates were quoted to be:
Weekly figures released by the Mortgage Bankers Association showed that the Market Composite Index, which is a measure of mortgage loan application volume, decreased by 0.3% in the week ending 17th April. In the week prior, the Index had increased by 7.3%.
The Refinance Index decreased by 1% and was 225% higher than the same week a year ago. In the previous week, the Index had risen by 10%.
The refinance share of mortgage activity decreased from 76.2% to 75.4% in the week. In the week prior, the share had increased by 74.2% to 76.2%.
According to the MBA:
It’s another relatively busy week for the Greenback.
Key stats include April consumer confidence figures, 1st quarter GDP numbers, and the weekly jobless claims figures.
We would expect inflation and trade data to have a muted impact in the week.
While the stats will provide some direction, the FED’s monetary policy decision on Wednesday will be the key driver.
The markets may not be expecting another move just yet, but the markets will expect some forward guidance in the press conference…
Away from the economic calendar, COVID-19 news and updates will be in focus along with crude oil prices…
On the geopolitical front, rising tensions in the Middle East may also garner some attention.
With over 28 years of experience in the financial industry, Bob has worked with various global rating agencies and multinational banks. Currently he is covering currencies, commodities, alternative asset classes and global equities, focusing mostly on European and Asian markets.