Mortgage News Weekly 3/29/21

In this Issue…

A Look Into the Markets

Mortgage Market Guide Candlestick Chart

Economic Calendar for the Week of March 29 – April 2

A Look Into the Markets

This past week we watched long-term interest rates improve nicely from the highest levels in over a year. The recent chatter about higher inflation has cooled down and allowed other themes to come in and influence stocks and interest rates, and it was mostly negative and bond-friendly. Let us break down what happened.

“Cause I’m the taxman, yeah, I’m the taxman” – “Taxman,” by The Beatles

Bonds and rates love bad news and slower economic conditions, so when the talk of “largest tax increase in decades” went across the wires this week, stocks and rates moved lower with the 10-year Note yield dropping to 1.59% from 1.75% just days earlier.

It’s far from clear what and who will be taxed, but what is clear is that corporate tax rates are going up, and that has a negative effect on stocks – hence the pullback. Taxes, whether you love them or hate them, hamper economic growth and weigh on consumer demand, which lowers inflation pressures: another positive for rates.

“Vaccination is a national priority” – French President Emmanuel Macron

Another big negative and uncertain event has been the sharp rise in COVID cases throughout Europe. The main cause of the spike appears to be a slow vaccination rollout.

Fresh lockdowns throughout the region could cause economic harm and elevate uncertainty, which again may cause stocks and rates to move lower.

The Buck Is Strong

Despite enormous spending by the U.S. government and much more on the way, the U.S. dollar has strengthened against other global currencies, touching the highest level since November 2020.

Why does this matter? Many commodities, like oil, are priced in U.S. dollars, so as the dollar gets stronger, it has put downward pressure on the price of a barrel of oil. This has an effect of lowering inflation pressures, because so many products are made of oil.

A strong dollar also makes our imports cheaper, which also lowers inflation pressures which bonds and rates love.

Bottom line: Rates have improved week-over-week and the trend may very well continue. However, like we experienced several weeks ago, any further rate improvement may be modest and short-lived. As economies reopen, we should expect rates to continue to increase further over time. So, if you or someone you know would like to talk about this incredible opportunity, please contact me.

Looking Ahead

There are many high-impact economic reports next week, including the ADP report and Friday’s Jobs Report. One of the Fed’s mandates is to promote maximum employment. As we get closer to that goal, that is when the Fed will lower its bond purchases and hike rates. We are nowhere near full employment at the moment.

Mortgage Market Guide Candlestick Chart

Mortgage-backed security (MBS) prices are what determine home loan rates. The chart below is the Fannie Mae 30-year 2% coupon, where current closed loans are being packaged. The right side of the chart shows prices bouncing off one-year lows, providing the modest improvement in rates we are seeing this week.

Chart: Fannie Mae 30-Year 2% Coupon (Friday, March 26, 2021)

Economic Calendar for the Week of March 29 – April 2

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