Interest Rates Settle at 2017 Lows

Casey Fleming

4/8/2017 | Casey Fleming

Last week I wrote that barring something surprising in the minutes of the Fed meeting from last month, rates would probably be stable this week.  As it turns out, something surprising was in the minutes, but the markets took it in stride and rates pretty much flatlined.

Let’s compare interest rates

Interest rates were stable the week of 4/3/17
Rates were stable until Friday afternoon

In the chart above I’ve narrowed the date range to only go back to October 1st of last year.  At this point, it doesn’t seem useful to look at last year’s rates, as we aren’t likely going back.  This also gives us better resolution in terms of current rates so we can spot trends more easily (and hopefully more quickly.)

You can see by the red line, which tracks U.S. Treasury Bonds, that yields on the securities settled down calmly all week until Friday afternoon, when they came back up about to where they started the week.

The green line tracks the Freddie Mac weekly mortgage market survey, which reports actual interest rates locked over the course of the week by consumers.  You can see that the retail rates offered by lenders dropped slightly this week, reflecting the fact that lenders love stability, so rates improve in a stable market.  However, it’s a backward-looking snapshot.  (Wednesday to Wednesday)

When Treasury yields turned up on Friday afternoon most lenders re-priced to higher rates as the lenders worried what that was about.  Remember, interest rates jump up, and settle down.  Expect this line to bump up slightly next week.

The blue line tracks Fannie Mae’s 60-day yield, essentially the wholesale price of mortgages.  You can see it improved all week long, but that Friday’s price does not yet reflect the slight jump in treasury yields Friday afternoon.  Expect this to pop up slightly on Monday.

Lender Margins

Margin lenders charge for mortgages
Lender margins are stable, but slightly high

The above chart tracks the margin between retail rates locked and the wholesale rate.  It has been above 0.400% since the beginning of 2016.  You can see that it doesn’t change much, but the high peaks show you where lenders got nervous about some sort of news event, and the low dips show you where lenders anticipated improving markets.  This week we moved down slightly, and are sitting slightly above half-way in a range that is now pretty well-established.  This means lenders have room to improve rates a little more, even if wholesale rates don’t improve.

Economic Reports 4/3/17 – 4/7/17

Economic reports during the first half of the week mostly fell in line with expectations, which simply underscores the stable bond yields of the week.  Wednesday’s FOMC minutes, which had the most potential for moving markets, were unsurprising except for the one comment I wrote about earlier this week.

Thursday’s Jobless Claims caused a bit of a stir in that they were a bit lower than anticipated.  Remember, rising wholesale inventories (which we saw the week before last) can lead to layoffs.  A dearth of layoffs might mean retailers were confident the consumer would jump back in and buy.

But then Friday came, and Non-Farm Payrolls (new jobs created in March) came in at 98,000.  The previous week 219,000 new jobs were reported, and economists expected 185,000 new jobs this week, so this was a major report.  Next month’s will be watched very closely.

Next week 4/10/17 to 4/15/17

Monday, Tuesday and Wednesday don’t bring any reports that are likely to move markets, so the week could start off quietly.  Thursday will bring Jobless Claims, which – given the Non-Farm Payrolls report – should be watched closely.  Any number close to 250,000 should reassure investors.  Much lower, and bonds could sell off, higher and stocks could sell off.

Friday is a big day, with – among others – Consumer Price Index, Core CPI, Retail Sales, Consumer Sentiment and Business Inventories.

This week also brings the first round of earnings reports for the first quarter.  We now get a chance to see how corporations are doing in the new year.  Strong reports could trigger a rise in stock prices, lower-than-expected earnings could trigger a selloff.

Finally, major international news can drive large movement in interest rates.  This last week we fired missiles into Syria.  How that plays out over the course of the next few weeks could have a much more significant impact on rates than any economic reports.  Obviously, this impact and effects of this wild card is very difficult to predict.

Compare interest rates.  They will…

Because of the lack of major economic reports, interest rates should follow stocks, with stable rates the first half of the week and the likelihood of improvement higher than the likelihood of interest rates going up.

Casey Fleming, Author The Loan Guide: How to Get the Best Possible Mortgage (On Amazon)
Mortgage Advisor, C2 FINANCIAL CORPORATION
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This article represents the opinion of Casey Fleming, and not necessarily that of C2 Financial Corp. This analysis was prepared with the best information available at the time it was written. Neither Casey Fleming, nor C2 Financial Corp., have any magical insider information about bond markets, real estate markets or mortgage markets that would make economic projections any more reliable than any other source. No warranty is made that the outcome will reflect the projections in this article, and neither Casey Fleming nor C2 Financial Corp. are responsible for decisions that you make regarding your own choices about your real estate or mortgage or those of your clients.

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