After several days of heavy volatility, the bond market is drifting into a sideways daze, lulled to sleep by the repetitive tones from multiple Fed speakers. One after another, they’re saying the same version of the same thesis (good progress on inflation, but need more, might cut in 2024, but not yet, surprisingly strong econ gives us time to decide, etc). Bonds have clearly heard it all before, which is why they didn’t care about Powell saying this stuff last week. NYCB headlines were worth temporary volatility, but not lasting changes. The largest ever 10yr auction passed without a trace.
09:11 AM
Initially stronger overnight on NYCB downgrade, but steadily weaker into domestic hours. Pushing back modestly now with MBS down 3 ticks (.09) and 10yr yields up 1.8bps at 4.108.
09:47 AM
10yr yields are quickly down a a few bps at 4.073 after new NYCB headlines. MBS up 2 ticks (.06).
11:46 AM
NYCB gains erased fairly quickly. 10yr now back to 2bps to 4.11. MBS down 3 ticks.
01:05 PM
Uneventful 10yr auction. 10s up 2bps at 4.11. MBS down 6 ticks (.19) on the day in 5.5 coupons.
02:26 PM
10yr unchanged from previous update. MBS tightening up a bit, now down only 3 ticks (.09).
04:42 PM
Weakest levels of the day with MBS down a quarter point moments ago. 10yr up 2.7bps at 4.117
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On a day where 10yr Treasury yields bounced multiple times at the 4.19% technical level, and considering the recent relevance of that particular level, we might expect to find that the intraday trading story was interesting or exciting. This could possibly be argued for the early morning trading surrounding the release of CPI seasonal revisions, but that played out in a matter of minutes and had nothing to do with 4.19%. The rest of the day was spent grinding sideways just under that ceiling. MBS did slightly better than Treasuries due to the monthly UMBS 30yr settlement process (not a reliable pro or con, but a pro this time around).
Jobless Claims
218k vs 220k f’cast, 227k prev
10:07 AM
Volatility after CPI revisions, but actual selling around 9:20-9:30am ET. Holding ground under the 4.19% ceiling, currently up 1.9bps at 4.177. MBS are down 3 ticks (.09).
01:15 PM
Off the weakest levels now. MBS down only 3 ticks (.09). 10yr up 2.3bps at 4.181.
03:25 PM
Slowly grinding toward less red levels. MBS down only 2 ticks (.06) and 10yr up 1.9bps at 4.177.
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The past two business days (Friday and Monday) accounted for the 3rd largest increase in mortgage rates since March 2020. Friday, specifically, was the fastest single-day spike in more than a year and 5th biggest spike since March 2020. Even when massive fundamental change is happening, rates don’t tend to maintain such a pace.
At present, it would be a stretch to say that massive fundamental change deserves much credit for the past 2 days. If anything, it was more of an adjustment to surprisingly strong economic data. A slew of Fed speakers has confirmed as much during this time. They’ve been reasonably unified in saying they still expect rate cuts in 2024, but not quite as quickly as the market had been expecting at the beginning of last week.
With all of the above in mind, it’s not a huge surprise to see a break in the unpleasant action. While we can’t yet be sure that rising rate momentum is finding a limit as opposed to simply taking the day off, we can at least enjoy the day off.
Specifically, the average top tier 30yr fixed rate fell back below 7% today after cresting that level for the first time in more than a month yesterday. Interestingly enough, the recovery was accomplished without any major underlying motivation. This could speak to the absence of that “massive fundamental change” mentioned above (which would suggest less volatility relative to last week in the coming days).
Here’s one solid assumption for mortgage rates for 2024 — they’ll act like a yo-yo. Again.
To see the extremes that home loans go through, my trusty spreadsheet looked at swings in Freddie Mac’s weekly 30-year average fixed rate going back to 1972.
And over the past half-century, the average year’s highest rate was 8.4 percent vs. a 7 percent low. That translates to a typical 12-month period having a 1.4 percentage-point swing between the top and bottom mortgage rate.
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Yes, rate volatility is fairly normal.
Three odd years
But the size of rate gyrations during the past three years has not been normal.
Remember, the Fed aggressively used interest rates to first stimulate a coronavirus-chilled economy, only to then hike rates to fight an overheated business climate.
Well, 2023 was sort of mainstream with rates running from a 7.8 percent high to a 6.1 percent low. That’s a slightly above-average 1.7-point spread, top to bottom.
Still, this was the 11th widest gap in any year during the past half-century.
Yet those fluctuations look tame vs. 2022 when rates ranged from 7.1 percent to 3.2 percent as the Fed ended its cheap-money policy. That 3.9-point chasm was the third-largest rate swing in a half-century. Bigger swings were seen in 1980 and 1982, another period when rate hikes were used to battle inflation.
And somehow all this recent mortgage turmoil followed a far calmer 2021 when the Fed used cheap money to prop up the coronavirus-chilled economy.
Rates moved only between 3.2 percent and the record-low 2.65 percent in 2021 — a half-point spread that was history’s sixth-smallest gap.
Simply stated, history clearly shows mortgage rates rarely move in a straight line.
Make or break
Do not forget, the ups and downs of rates put huge spins on a borrower’s purchasing power. These fluctuations can make or break many a homebuying deal.
During the past half-century, there’s been an average 15 percent difference between the monthly mortgage payment tied to a year’s highest mortgage rate compared to the size of the monthly check at the lowest rate.
Last year, there was a 19 percent swing, history’s ninth-largest gap swing.
And that looks stable vs. a painful 2022 and the largest gyrations of the past half-century — a 55 percent difference due to the Fed increasing rates aggressively.
All that excitement came after a placid 2021 when purchasing power swung only 7 percent.
Still, history strongly suggests that mistiming the mortgage market can be an expensive mistake.
Bottom line, I took this rate-swing history and applied it to 2023’s year-end 6.6 percent average rate to create a forecast range for 2024.
Some simple math suggests the average 30-year mortgage rate will run between 7.3 percent and 5.9 percent in 2024. And that’s without doing much thinking about the Fed’s next moves, how the economy might fare, or what’s next for inflation.
By the way, history says a year’s average mortgage rate landed within this forecast formula’s projected range 80 percent of the time.
Lansner is the business columnist for the Southern California News Group. He can be reached at [email protected].
Investing in mutual funds has become a cornerstone strategy for those looking to grow their wealth over time. With a mutual fund, you’re essentially pooling your money with other investors to buy a large portfolio of stocks, bonds, or other securities. This collective investment approach allows individuals to participate in a diversified range of assets, which might be difficult to achieve on their own.
What exactly is a mutual fund?
At its core, a mutual fund gathers money from many investors to invest in various securities. These can include stocks, bonds, and other financial instruments. The beauty of mutual funds lies in their ability to offer immediate diversification, spreading out the risk across different investments.
When you buy a share of a mutual fund, you’re buying a piece of a large, varied portfolio. For example, a single mutual fund share could include small portions of companies like Apple, Microsoft, and Berkshire Hathaway.
How Mutual Funds Work
Mutual funds are a popular choice for investors looking to diversify their portfolios without the hassle of managing each investment individually. Let’s break down how these investment vehicles operate, focusing on the collective investment strategy, the pivotal role of mutual fund managers, the principle of diversification, and the critical concept of Net Asset Value (NAV).
Pooling Money for Diverse Investments
At its most basic, a mutual fund works by pooling money from multiple investors. This pool of funds is then used to buy a wide array of securities, including stocks, bonds, and other financial instruments. This collective buying power allows individual investors to access a broader range of investments than they might be able to afford or manage on their own.
The Crucial Role of Fund Managers
A mutual fund manager is a professional that is tasked with making the day-to-day decisions about where to invest the fund’s money. Their goal is to select securities that will help the fund achieve its investment objectives, whether that’s growth, income, or stability. Through their expertise, they strive to maximize returns for investors while adhering to the fund’s stated investment strategy.
Emphasizing Diversification and Risk Management
One of the key benefits of investing in mutual funds is diversification. By holding a wide variety of investments within a single fund, mutual fund investors can reduce the impact of poor performance from any single security. This strategy helps manage risk and can lead to more stable returns over time. Mutual funds make diversification easier and more accessible, particularly for investors with smaller amounts of capital.
Understanding Net Asset Value (NAV)
The net asset value (NAV) is a fundamental concept in the world of mutual funds, serving as a critical measure of a fund’s per-share market value.
The Definition and Importance of NAV
NAV represents the total value of all the securities held by the fund, minus any liabilities, divided by the number of shares outstanding. This figure is crucial because it determines the price at which shares of the mutual fund can be bought or sold at the end of the trading day. Investors pay close attention to NAV to assess the performance and value of their mutual fund investments.
Calculating NAV: A Closer Look
To calculate the NAV of a mutual fund, you subtract the fund’s liabilities from its assets and then divide this figure by the number of shares outstanding. This calculation is typically done at the end of each trading day to reflect the current market value of the fund’s holdings. By understanding NAV, mutual fund investors can make informed decisions about when to buy or sell shares of a mutual fund, ensuring they are aligned with their investment strategies and goals.
Types of Mutual Funds
Investors have a wide array of mutual fund types to choose from, each catering to different investment goals, risk tolerances, and time horizons. Understanding the nuances of these various funds can significantly aid in constructing a diversified and effective investment portfolio. Here’s a comprehensive look at some of the key types of mutual funds available:
Equity Funds (Stock Funds)
Equity funds, or stock funds, are mutual funds that invest primarily in stocks of publicly traded companies. They are categorized based on the market capitalization of the companies they invest in (small-cap, mid-cap, large-cap) or their investment strategy (growth, value, dividend income).
Equity funds aim to provide capital appreciation over the long term and can be either actively managed, where a fund manager picks stocks to try to outperform the market, or passively managed, mimicking the performance of a specific index.
Fixed-Income Funds (Bond Funds)
Fixed-income funds, often referred to as bond funds, invest in bonds and other debt securities that pay a fixed rate of return. These funds are designed to provide investors with steady income and are generally considered less risky than equity funds. They can invest in various types of bonds, including government bonds, municipal bonds, and corporate bonds, each offering different levels of risk and return.
Asset Allocation Funds
Asset allocation funds are designed to invest across different asset classes, including stocks, bonds, and sometimes alternative investments like real estate or commodities. These funds adjust their asset allocation based on the fund’s investment objectives and the current market conditions, aiming to balance risk and return. They can be a good choice for investors looking for a diversified investment in a single fund.
Index Funds
Index funds aim to replicate the performance of a specific market index, such as the S&P 500 or the Dow Jones Industrial Average, by investing in the securities that make up that index. These funds are known for their low expense ratios and passive management strategy, making them an attractive option for cost-conscious investors seeking market-matching returns.
Target Date Funds
Target date funds are a type of asset allocation fund that automatically adjusts its investment mix as the fund’s target date (usually retirement) approaches, shifting from more aggressive investments to more conservative ones. These funds are designed for investors who prefer a hands-off approach to managing their retirement savings.
Money Market Funds
Money market funds invest in short-term, high-quality debt securities, such as Treasury bills and commercial paper. They aim to provide investors with a safe place to invest easily accessible, liquid assets, offering a higher return than regular savings accounts, though with slightly higher risk.
Commodity Funds
Commodity funds invest in physical commodities, such as gold, oil, or agricultural products, or in commodity-linked derivative instruments. These funds can offer investors a hedge against inflation and a way to diversify their portfolios away from traditional stocks and bonds, though they can be more volatile.
Environmental, Social, and Governance (ESG) Funds
ESG funds select investments based on ethical, social, and environmental criteria, in addition to financial considerations. Investors who wish to align their investment choices with their personal values may find these funds appealing. ESG funds can invest across a range of industries and asset classes, excluding companies that do not meet specific ethical standards.
Setting Up a Mutual Fund Account
Embarking on your mutual fund investment journey begins with setting up an account. This process is straightforward, but there are a few key considerations to keep in mind to ensure you’re making informed decisions right from the start.
Here’s a step-by-step guide to getting your mutual fund account up and running, along with insights into selecting a broker and understanding the fees involved.
Step-by-Step Guide to Opening an Account
Determine your investment amount: Start by deciding how much money you’re ready to invest. Mutual funds often have minimum investment requirements, but these can vary widely from one fund to another.
Choose a broker or investment platform: Research brokers or investment platforms that offer access to the mutual funds you’re interested in. Look for platforms that align with your investment goals and budget.
Understand the fees: Before making your choice, thoroughly investigate the fees associated with buying, holding, and selling mutual funds on the platform. These can include management fees, transaction fees, and any other charges that could affect your investment’s growth.
Open your account: Once you’ve chosen a broker or platform, go ahead and open your account. This process typically involves providing some personal information and setting up a way to fund your account.
Start investing: With your account open, you’re ready to start buying shares of mutual funds. Consider starting with a diversified fund that aligns with your risk tolerance and investment goals.
Selecting a Broker and Understanding Fees
When choosing a broker or investment platform, consider not only the fees but also the services and support offered. Some investors prefer platforms with robust educational resources and customer service, while others might prioritize low fees or the availability of a wide range of funds. Understanding the fee structure is crucial because fees can significantly impact your investment returns over time.
Making Money and Managing Risks with Mutual Funds
Investing in mutual funds can be a profitable endeavor, but it’s important to understand how returns are generated and the risks involved. Here’s what you need to know about making money with mutual funds and managing the inherent risks of investing in the market.
How Investors Earn Returns
Mutual fund returns can come from several sources, including dividend payments from stocks within the fund, interest payments from bonds, and capital gains from selling securities at a higher price than they were purchased.
The fund’s performance, and consequently, your return as an investor, is influenced by the market performance of its underlying investments. As the value of the fund’s holdings increases, so does the value of your shares in the fund.
Understanding the Risks and Market Volatility
While mutual funds can offer a more diversified and thus potentially less risky investment than individual stocks, they are not immune to market volatility. The value of your investment can fluctuate based on overall market conditions, the performance of the securities within the fund, and economic factors. Diversification can help manage risk, but it cannot eliminate it entirely.
It’s vital to have a long-term perspective and recognize that market fluctuations are a normal part of investing. By staying informed about your investments and maintaining a diversified portfolio aligned with your risk tolerance and financial goals, you can navigate market volatility more effectively and work towards achieving your investment objectives.
Comparing Mutual Funds with ETFs
When expanding your investment portfolio, understanding the differences between mutual funds and exchange-traded funds (ETFs) is crucial. Both investment types offer unique advantages and come with distinct fee structures and management styles.
Differences Between Mutual Funds and ETFs
Mutual funds are investment vehicles that pool money from many investors to purchase a diversified portfolio of stocks, bonds, or other securities. They are typically managed by a professional fund manager and are bought or sold at the end of the trading day based on the fund’s net asset value (NAV).
ETFs, on the other hand, are similar in that they also pool investor money to buy securities, but they trade like stocks on an exchange. This means they can be bought and sold throughout the trading day at market prices that can fluctuate.
Fee Structures and Management Styles
Mutual funds often have higher expense ratios due to active management, where fund managers make decisions on which securities to buy or sell. ETFs tend to have lower fees, partly because many are passively managed, aiming to track the performance of a specific index rather than outperforming the market.
See also: What’s the Difference Between ETFs and Mutual Funds?
Benefits of Investing in Mutual Funds
Mutual funds offer several advantages that make them an attractive option for individual investors, including diversification, liquidity, and professional management.
Diversification
By investing in a mutual fund, you gain access to a broad array of securities in one transaction. This diversification can help reduce your investment risk by spreading it across various assets.
Liquidity
Mutual funds offer high liquidity, meaning you can buy or sell your shares of the fund at the end of each trading day at the NAV, making it easier to manage your investments.
Professional Management
Actively managed mutual funds benefit from the expertise of a fund manager who makes investment decisions aimed at achieving the fund’s objectives. This is particularly valuable for investors who do not have the time or experience to manage their investments.
Fund managers actively select and manage the investments within the fund to try to outperform the market, providing a potential advantage over passively managed funds.
Withdrawing Money from Mutual Funds
Withdrawing money from your mutual fund investments can have financial implications, especially when it comes to retirement accounts.
Penalties and Taxes on Withdrawals
If you withdraw from a mutual fund within a retirement account like an IRA or 401(k) before the age of 59 and a half, you may face early withdrawal penalties and income taxes on the amount withdrawn. For non-retirement accounts, selling shares of a mutual fund can trigger capital gains taxes if the investment has increased in value.
Starting Your Mutual Fund Investment
Beginning your journey with mutual funds involves a few key steps, including understanding the initial investment requirements and the importance of research.
Initial Investment Requirements
Mutual funds often have minimum investment requirements, which can vary significantly from one fund to another. It’s important to choose a fund that matches your financial situation and investment goals.
Importance of Research and Understanding Fund Performance
Before investing, thoroughly research potential mutual funds to understand their investment strategy, past performance, and fee structure. Reviewing historical returns can provide insight into how the fund performs in different market conditions, helping you make an informed decision.
Final Thoughts
Diving into mutual fund investments offers a promising path to wealth growth and achieving your financial aspirations. It’s crucial to engage in thorough research and choose mutual funds that best match your investment goals and risk appetite. Mutual funds are integral to a diverse investment strategy, providing the benefits of diversification, expert management, and liquidity.
Being well-informed is key to investment success. Take the initiative to explore the various mutual fund options, their past performances, fee structures, and their role in your overall investment portfolio. With careful selection and strategic planning, mutual funds can significantly contribute to a robust and prosperous financial future.
Frequently Asked Questions
What are the differences between actively and passively managed mutual funds?
Actively managed funds are managed by professionals who actively select investments to outperform the market, leading to higher fees. Passively managed funds, or index funds, aim to mirror the performance of a specific index, resulting in lower fees due to less frequent trading and lower operational costs.
How do mutual fund dividends work?
Mutual fund dividends come from the income generated by the fund’s investments. Shareholders can either receive these dividends as cash or reinvest them to buy more shares of the fund. The approach depends on the fund’s distribution policy and the investor’s preference.
Can I lose money in a mutual fund?
Yes, investing in mutual funds carries the risk of loss. The value of a mutual fund can decrease if the investments it holds lose value. Market volatility and economic changes can affect the fund’s performance, potentially leading to losses.
How do I choose the right mutual fund for me?
Choosing the right mutual fund involves considering your investment goals, risk tolerance, the fund’s performance history, fee structure, and the fund manager’s track record. It’s important to select a fund that aligns with your financial objectives and comfort with risk.
How often should I review my mutual fund investments?
Review your mutual fund investments at least annually or when your financial situation or goals change. This helps ensure your investments remain aligned with your objectives and allows you to make adjustments based on the fund’s performance and changes in the market.
What is the impact of taxes on mutual fund investments?
Taxes on mutual fund investments can affect your returns, especially for funds in non-retirement accounts. Dividends and capital gains distributions are taxable events. Selling shares at a profit also triggers capital gains taxes. Investing in tax-efficient funds or using tax-advantaged accounts can help minimize the tax impact.
This is a challenging day to attempt to understand the relationship between events and rate movement. At the most superficial level, rates are much lower and it was a Fed day. Because Fed days often cause big rate movement, it’s logical to assume that rates are lower because the Fed “did something.”
We already know the Fed didn’t cut rates today and that a Fed rate cut/hike is never an indication of 30yr fixed mortgage rates changing on the same day. But we also know mortgage rates can react to other things the Fed says in the statement or press conference.
Even then, the Fed only caused some sideways volatility in the underlying bond market this afternoon. Mortgage rates were already noticeably lower before the Fed, largely due to timing of yesterday’s bond market improvement in conjunction with more bond market improvement this morning. The latter is attributable to economic data and headlines regarding banking troubles for NY Community Bancorp.
There is even some bond market improvement in the afternoon (attributable to esoteric non-Fed-related events that have to do with month-end bookkeeping) that has yet to be reflected on many lenders’ rate sheets.
All of the above adds up to a very good day for rates with the average lender dropping in a noticeable way for the first time in weeks. Additional gains will depend on the incoming economic data or, as we were reminded today, unscheduled events that cause concern in the market.
Investing is a powerful tool that allows you to put your money to work to help you reach future financial goals. But if you’re new to investing, you may be asking yourself what investment strategies should you pursue?
Here’s a guide to help you get started.
5 Popular Investment Strategies for Beginners
1. Asset Allocation
Once you’ve opened an investment account and you begin to build your portfolio, asset allocation is an important strategy to consider to help you balance potential risk and rewards. A typical portfolio might divide its assets among three main asset classes: stocks, bonds, and cash. Each asset class has its own risk and return profile, behaving a little bit differently under different market circumstances.
For example, stocks tend to offer the highest gains, but they are also the most volatile, presenting the most potential for losses. Bonds are generally considered to be less risky than stocks, while cash is typically more stable.
The proportion of each asset class you hold will depend on your goals, time horizon, and risk tolerance. Your goal is how much you aim to save. Your time horizon is the length of time you have before reaching your goals. And your risk tolerance is how much risk you’re willing to take to achieve your goals.
Your asset allocation can shift over time. For example, someone in their 30s saving for retirement has a long time horizon and may have a higher risk tolerance. As a result their portfolio may contain mostly stocks. As that person grows older and nears retirement, their portfolio may shift to contain more bonds and cash, which are typically less risky and less likely to lose value in the short-term. 💡 Quick Tip: If you’re opening a brokerage account for the first time, consider starting with an amount of money you’re prepared to lose. Investing always includes the risk of loss, and until you’ve gained some experience, it’s probably wise to start small.
2. Diversification
Another way to help manage risk in your portfolio is through diversification, building a portfolio with a mix of investments across assets to avoid putting all your eggs in one basket.
Here’s how it works: Imagine you had a portfolio consisting of stock from one company. If that stock does poorly your entire portfolio suffers.
Now imagine a portfolio consisting of many stocks, from companies of all sizes and sectors. Not only that, it also holds other investments, including bonds. If one stock suffers, it will have a much smaller effect on your overall portfolio, spreading out the risk of holding any one investment.
3. Rebalancing
Your portfolio can change over time, shifting your assets allocation and diversification. For example, if there is a bull market and stocks outperform, you may discover that you now hold a greater portion of your portfolio in stocks than you had intended.
At this point, you may need to rebalance your portfolio to bring it back in line with your goals, time horizon, and risk tolerance. In the example above, you might decide to sell some stock or buy more bonds, for instance.
4. Buy and Hold Strategy for Investing
Market fluctuations are a natural part of the market cycle. However, investors may get nervous and be tempted to sell when prices drop. When they do, investors might lock in their losses and miss out on subsequent market rebounds.
Investors practicing buy-and-hold strategies tend to buy investments and hang on to them over the long term, regardless of short-term movements in the market. Doing so may help curb the tendency to panic sell, and it might also help minimize fees associated with trading.
Buy and hold might also affect an investor’s taxes. Holding a long-term investment vs. short-term one can make a big difference in terms of how much an individual pays in taxes.
If you profit from an investment after owning it for at least a year, it’s a long-term capital gain. Less than that is short-term. Capital gains tax rates can change, but generally, longer-term investments are taxed at a lower rate than short-term ones. 💡 Quick Tip: How to manage potential risk factors in a self-directed investment account? Doing your research and employing strategies like dollar-cost averaging and diversification may help mitigate financial risk when trading stocks.
5. Dollar-Cost Averaging
Dollar-cost averaging is a strategy in which individuals invest on a regular basis by making fixed investments on a regular schedule regardless of price.
For example, say an investor wants to invest $1,000 every quarter in an exchange-traded fund (ETF) that tracks the S&P 500. Each quarter, the price of that fund will likely vary — sometimes it will be up, sometimes it will be down. The amount of money the individual invests remains the same, so they are buying fewer shares when prices are high, and more shares when prices are low.
This strategy can help individuals avoid emotional investing. It’s also straightforward and can help investors stick to a plan, rather than trying to time the market.
The Takeaway
Investing is an ongoing process. Your life, goals, and financial needs will all change as your circumstances do. For example, may you get a raise at work, get married and have a child, or decide to retire early. Factors like these will change how much money you need to save and how you invest. Monitor your portfolio and make adjustments as needed.
Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).
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“Long-term” is a subjective measurement, but in this case, it refers to the the past 7 or 8 months. Today’s mortgage rates dropped to levels that–until 2 other recent days in late December–haven’t been seen since May, 2023. In other words, we’re effectively at 8 month lows today, even if those lows aren’t very different from the lows in late December.
This week’s precipitous drop came courtesy of factors other than the slate of economic data. That’s interesting because we’d been eagerly anticipating this week’s econ data as a potential source of volatility. Instead, it was a friendly update from the U.S. Treasury on its borrowing plans (something that can have a big, indirect impact on mortgage rates by altering the supply/demand equation in the Treasury market which then spills over into the mortgage market).
All of the above means that Friday morning’s jobs report is our first significant opportunity to see a big move in rates that’s driven by economic data. As is always the case ahead of this report, the reaction could easily take rates quite a bit higher or lower. It can also thread the needle and keep things fairly flat.
The market is expecting the job count to drop to 180k from last month’s 216k. A lower number would likely keep low rates intact, and a much lower number would allow for new longer-term lows. Conversely, a number over 200k would be more likely to put upward pressure on rates. It’s not uncommon for the actual number to come in roughly 100k away from the forecast level. The farther from forecast, the likely we are to see the big reaction.
Mortgage rates are in the midst of a bit of a winning streak, but it’s about as small and as neutral as winning streaks get. Today was the third day in a row where the top tier, conventional 30yr fixed rate was at least as good a the previous business day. The catch is that there’s not much difference between today’s rates and the recent peak from 4 days ago.
There’s been a lot of momentum behind the notion that rates will continue to fall in early 2024 after dropping sharply in late 2023. Instead, we’ve seen a classic, subdued correction off the longer-term lows from mid December. The size and timing of the correction make great sense considering the size and timing of the big drop that preceded it.
From here, the next thing that makes great sense is for rates to follow the guidance of the incoming economic data first and foremost. Comments from the Federal Reserve will be a supporting actor until the March Fed meeting.
In other words, we have a Fed meeting coming up in 2 days and we DON’T expect there to be any major fireworks. This week’s only pyrotechnic potential comes in the form of several key economic reports in addition to the Treasury department’s update on its borrowing needs.
Treasury borrowing affects mortgage rates indirectly because it directly impacts the “supply” side of the supply/demand equation. If Treasury doesn’t need to borrow as much, Treasury yields fall. Lower Treasury yields correlate with lower mortgage rates, all other things being equal.
As for economic data, today was the only empty day of the week. Each additional day brings at least one major report with Friday’s jobs report being the biggest potential source of volatility for rates.
Mortgage rates are in the midst of a bit of a winning streak, but it’s about as small and as neutral as winning streaks get. Today was the third day in a row where the top tier, conventional 30yr fixed rate was at least as good a the previous business day. The catch is that there’s not much difference between today’s rates and the recent peak from 4 days ago.
There’s been a lot of momentum behind the notion that rates will continue to fall in early 2024 after dropping sharply in late 2023. Instead, we’ve seen a classic, subdued correction off the longer-term lows from mid December. The size and timing of the correction make great sense considering the size and timing of the big drop that preceded it.
From here, the next thing that makes great sense is for rates to follow the guidance of the incoming economic data first and foremost. Comments from the Federal Reserve will be a supporting actor until the March Fed meeting.
In other words, we have a Fed meeting coming up in 2 days and we DON’T expect there to be any major fireworks. This week’s only pyrotechnic potential comes in the form of several key economic reports in addition to the Treasury department’s update on its borrowing needs.
Treasury borrowing affects mortgage rates indirectly because it directly impacts the “supply” side of the supply/demand equation. If Treasury doesn’t need to borrow as much, Treasury yields fall. Lower Treasury yields correlate with lower mortgage rates, all other things being equal.
As for economic data, today was the only empty day of the week. Each additional day brings at least one major report with Friday’s jobs report being the biggest potential source of volatility for rates.