Todays Commentary

Updated on June 19, 2018 10:35:55 AM EDT
Tuesday’s bond market has opened in positive territory again as stocks continue their tariff-related slide. The major stock indexes are showing heavy losses with the Dow down 383 points and the Nasdaq down 90 points. The bond market is currently up 9/32 (2.88%), which should improve this morning’s mortgage rates by slightly less than .125 of a discount point.

Today’s only economic data was May's Housing Starts that showed a 5% jump in new home groundbreakings. This was a larger increase than was expected and pushed the number of starts to their best level since July 2007. That is bad news for bonds and mortgage rates because it points towards stronger economic activity. However, the increase is being attributed almost entirely on a 62% jump in starts in the Midwest. Several other regions reported declines in new starts. Fortunately, we are not seeing this report influence today’s trading or mortgage pricing.

What is driving this morning’s stock selling and bond gains is more tariff talk and global stock weakness that is a result of it. After China retaliated against the most recent $50 billion U.S. tariff on their goods, President Trump threatened $200 billion as the next step. To many traders around the globe, the escalating trade war is becoming more of a threat to the global economy, causing international stock markets to sell-off. This carried into our stock markets this morning, leading to a flight to safety into bonds. As bonds are being bought to escape the selling in stocks, their yields move lower, bringing mortgage rates down also. This tariff battle would normally be a big issue, but in a week with little in terms of economic data to draw attention, it is clearly taking centerstage.

The recent bond rally has pushed the benchmark 10-year Treasury Note yield back below an important threshold of 2.92%. The further away from that level it goes, the better it is for mortgage shoppers. However, we need to be careful when the markets react to news like this because if the issue that is fueling the bond rally is rectified, the markets often unwind their moves very quickly. In other words, if it appears the trade war is going to be resolved, the bond gains and mortgage rate improvements that came as a result of it could quickly evaporate. Enjoy the improvements, but proceed cautiously if still floating an interest rate.

The second report of the week will be released at 10:00 AM ET tomorrow morning when the National Association of Realtors posts May's Existing Home Sales. This report tracks resales of existing homes, giving us a measurement of housing sector strength. It is considered to be moderately important to the markets, but can also influence mortgage rates if it shows a sizable difference between forecasts and actual results. Analysts are currently expecting to see a small increase in sales. As with most economic reports we get, weak numbers will be favorable to mortgage rates.

 ©Mortgage Commentary 2018
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