Rate Lock Advisory

Friday, October 22th

Friday’s bond market has opened in positive territory, recovering a good part of yesterday’s afternoon losses. The major stock indexes are mixed yet again with the Dow up 118 points and the Nasdaq down 61 points. The bond market is currently up 9/32 (1.66%), but heavy selling late yesterday should still cause an increase in this morning’s rates of approximately .125 of a discount point. If you saw an intraday upward revision to rates before closing yesterday, you should see an improvement this morning.

9/32


Bonds


30 yr - 1.66%

118


Dow


35,722

61


NASDAQ


15,154

Mortgage Rate Trend

Trailing 90 Days - National Average

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

Indexes Affecting Rate Lock

Medium


Unknown


Fed Talk

There is no relevant economic data being posted today. Fed Chairman Powell will be speaking at 11:00 AM ET, but the topic does not appear to be something that will influence mortgage rates. That said, his words have the potential to be a market mover at any time. We will be watching for any surprises.

Medium


Negative


COVID-19 Matters

It is a good opportunity to address the recent upward move in bond yields (and mortgage rates). The last time the benchmark 10-year Treasury Note yield was this high was back in mid May and before that, early April. It appears there are two primary driving forces behind this sell-off. One is the current decline in COVID cases that had been a drag on the economy. The surge in cases this summer threatened to derail the economic recovery from the pandemic. With cases rapidly declining, odds are now better the economy will be able to fully recover, making bonds less appealing to investors.

High


Negative


Geopolitical/Financial Issues

More impactful is concern about lasting inflation. Rising prices and supply chain issues were no surprise after the economy rebounded from the shutdown and the restrictions that were in place. But the term transitory inflation was used to describe what was expected to be a temporary issue. However, there are now growing concerns that inflation may be here for a longer period than initially thought. In other words, analysts and traders are growing impatient. Inflation is the number one nemesis of the bond market because it erodes the value of a bond’s future fixed interest payments, causing investors to sell at a discount to offset that loss in value. And when investors sell bonds, yields and mortgage rates usually move higher.

High


Unknown


Economic Stimulus News

On a similar note, there is plenty of speculation that the inflationary pressures in the economy are going to cause the Fed to start reducing their current monthly bond purchases at the November 2-3 FOMC meeting. At $120 billion a month, the Fed is currently a significant buyer of Treasury securities and mortgage bonds. If they start tapering their monthly purchases, it means there is less demand and more supply available in the market, resulting in discounted prices (and higher yields). With that FOMC meeting nearing quickly, traders are taking defensive positions in case the Fed announces a sizable reduction in their monthly buying. If the Fed decides to delay that move, or announce a minimal adjustment, we should see bonds start to rally November 3rd.

High


Unknown


Bond Trends

Also worth noting is that both times this year that yields touched current levels, they almost immediately started a downward trend that brought mortgage rates lower. That paints a clear resistance level that not only is likely contributing to this morning’s gains but also allows us to be optimistic that the selling may be nearing an end. Assuming that is accurate, we should see rates remain fairly calm or move a little lower heading into the FOMC meeting.

---


Unknown


None

Next week has a good-sized number of economic releases for the markets to digest, in addition to a couple of Treasury auctions. Most of the week’s data is considered to be of moderate or low importance, but there are two releases that are expected to be more influential than the others. One of them, the initial 3rd quarter GDP reading, is extremely important to the stock and bond markets. The week starts off with nothing of relevance set for Monday. Look for details on all of next week’s activities in Sunday evening’s weekly preview.

Float / Lock Recommendation

If I were considering financing/refinancing a home, I would.... Lock if my closing was taking place within 7 days... Lock 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.


Norcal Capital Group, Inc

1369 El Camino Real
Millbrae, CA 94030