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Bart Castelli

Mortgage Rates Trending Lower

Monday, September 26, 2016 - Article by: Bart Castelli - Homestar Financial Corporation NMLS #70864 - Message

Mortgage rates are trending slightly lower this morning. Last week both the 10yr Treasury and the MBS market improved to drive down the pricing that affect mortgage rates, as the market was highly volatile.

There are three things that can have some big impact on the markets this week. The key is the OPEC meeting on Tuesday. While no one expects any real cuts, there has been swirling discussions on putting some "freezes" on current levels. This is important for a couple of reasons. First and foremost, this is a group that is politically fractured and has not been able to move markets as they simply have not been a unified front. But if the new minister can piece an agreement together this could mean that they will once again have some influence. Secondly, anything that would cause WTI Oil to move back above $50 is inflationary and therefore negative for all bonds.

The most anticipated Presidential debate in decades could get Super Bowl level ratings. But how can this impact mortgage rates? Well from purely an analytical point of view, generally speaking - a Trump Presidency will mean higher rates. But is that a bad thing? Interest rates are reflection of the state of the economy. A high interest rate signifies an economy growing too fast. A super low interest rate signifies an economy that is contracting or barely growing. We know from the Central Bank that they are forced to have certain policies in place because our elected officials have had grid locked. We have not had a budget in almost 10 years. So, here's how long bond traders look at this: If Trump wins, his lower taxes and a balanced budget would be better for economic growth than Hillary's plan and no budget (ie more of the same gridlock). From a regulatory point of view, many would prefer Hillary because of the grid lock.

The last item is we have GDP this week. It may be the same old thing, but the CORE YOY is being watched very closely to see if we are heading towards that mythical 2% level.

I expect mortgage rates to be relatively calm today, even though we have seen some positive movement recently at 10:30AM with the 10yr falling to 1.58% and the MBSs a positive 18BPS. Tomorrow, we may see some volatility depending on how the debate goes and on OPEC. This is a big week for economic data and politics, not to mention Fed speakers are all over this week saying little but getting a lot of unnecessary attention; the exception is Janet Yellen testifying before the House Financial Services Committee on Wednesday. The topic, the central bank's supervision and regulation of the financial system.

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