Daily Rate Lock Advisory

Indexes Affecting Rate Lock

Medium

Unknown

Treasury Auctions (5,7,10,20,30 year)

Tuesday has the first of this week's two relevant Treasury auctions. 10-year Treasury Notes will be sold Tuesday, followed by 30-year Bonds Thursday. Results of both will be posted at 1:00 PM ET each day, making them early afternoon events. If they are met with a strong demand from investors, particularly international buyers, we should see strength in the broader bond market and improvements in mortgage pricing during afternoon hours those days. On the other hand, a weak interest in the auctions could lead to upward revisions to rates.

Medium

Unknown

Employment Cost Index (Quarterly)

The first relevant economic report will come Wednesday morning when the 3rd Quarter Employment Cost Index (ECI) is released at 8:30 AM ET. This previously delayed data tracks employer costs for salaries and benefits during the July through September months, giving us an indication of wage inflation pressures. Rapidly rising costs raise wage inflation concerns that spread to other parts of the economy and hurts bond prices. It is expected to show an increase in costs of 0.9%. A smaller than expected increase would be good news for mortgage rates. However, this data is aged at this point, meaning it likely won’t have a significant impact on bond trading or mortgage pricing.

High

Unknown

Federal Open Market Committee (FOMC) Statement

The big news of the week will come from the last FOMC meeting of the year that will adjourn Wednesday afternoon. Analysts are mostly expecting the Fed will cut key short-term interest rates by a quarter-point at this meeting, but the decision is unlikely to be unanimous. Assuming they do in fact make that move, the markets will be looking closer for information about future actions. The lack of data because of the 43-day government shutdown and uncertainty about inflation should cause much debate about what they will do this week.

High

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Misc Fed

Generally speaking, a quarter-point cut should be a non-factor for the markets since it is so widely expected due to rising concerns about the employment sector. Assuming they lower key short-term rates by .250 of a point, traders will be focused on what Chairman Powell and friends are likely to do going forward. This will come from the post-meeting statement, the so-called dot plot and comments during Chairman Powell’s press conference.

High

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Federal Open Market Committee (FOMC) Statement

By theory, bad news for bonds and mortgage rates would be them holding rates at current levels. Failing to lower key rates would be a clear sign that they are more concerned about inflation rising than the softening labor market. Stronger inflation makes long-term securities, such as mortgage-related bonds, less attractive to investors because it erodes the value of the bond’s future fixed interest payments. Therefore, we can expect to see bond selling and mortgage rates to move significantly higher if they decide not to cut key rates this week.

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General Bond Trends

That said, it is very important to remember what happened following the previous two rate cuts this year. The afternoon of the September and October FOMC meetings and the following morning both brought a sizable upward move in rates despite getting quarter-point Fed rate cuts. The reasons for the negative reaction to those cuts are debatable and there is no guarantee the bond market will react the same this time, but we should keep that in mind going into the meeting. It would be prudent to consider that pattern if still floating an interest rate ahead of this week’s meeting.

High

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Misc Fed

The FOMC meeting will adjourn at 2:00 PM ET Wednesday. This is also when they will release their post-meeting statement and announce their revised economic projections (including the dot-plot that predicts where key rates will be in the future). Those will be followed by a press conference with Chairman Powell at 2:30 PM ET. It is quite possible to see large swings in the markets mid and late afternoon Wednesday due to the amount of Fed information we will get and the uncertainty of what will be said about the future.

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Overall, Wednesday is clearly the most important day of the week for rates. Either tomorrow or Friday may be the calmest day, assuming something unexpected doesn’t happen. We are expecting to see a very active week for the bond market, leading to plenty of movement in mortgage rates. Accordingly, please proceed cautiously if still floating an interest rate since we could see them end the week far from tomorrow’s opening levels.

Rate Lock Advisory

Mortgage Rate Trend

Indexes Affecting Rate Lock

Treasury Auctions (5,7,10,20,30 year)

Employment Cost Index (Quarterly)

Federal Open Market Committee (FOMC) Statement

Misc Fed

Federal Open Market Committee (FOMC) Statement

General Bond Trends

Misc Fed

none

Float / Lock Recommendation