Updated on October 23, 2018 10:22:01 AM EDT
The major stock indexes are in step this morning with other global stock markets. Stocks across the globe went into selling mode as concerns about economic growth rose. Britain’s pending exit from the European Union (Brexit) is not going smoothly and rising concerns about Italy’s financial situation are two major contributors. Stocks tend to do well in stronger economic conditions, so the renewed concerns make stocks less appealing to investors. As investors lose interest in stocks, they tend to shift funds into bonds as a safe-haven. We are seeing a textbook example of the flight to safety in today’s trading.
As funds move into bonds, prices rise and yields move lower. Because mortgage rates tend to track bond yields, today’s events are good news for mortgage shoppers. However, it is worth noting that stocks can be quite volatile. Therefore, if the concerns fueling today’s stock selling ease in the markets, we could see a reversal that brings funds back into stocks fairly quickly. That could lead to mortgage rates moving higher quickly also.
Septembers New Home Sales will start the week’s calendar late tomorrow morning. This Commerce Department report covers the small percentage of home sales that last weeks Existing Home Sales report didnt include. It is expected to show a small decline in sales of newly constructed homes, but I dont see this report having much of an impact on mortgage rates unless it shows a significant variance from forecasts.
Tomorrow also has the first of this week’s two Treasury auctions that have the potential to influence mortgage rates. 5-year Treasury Notes will be sold tomorrow while 7-year Notes go Thursday. If these sales are met with a strong demand from investors, particularly the first, bond prices may rise during afternoon trading. This could lead to improvements to mortgage rates shortly after the results of the sales are posted at 1:00 PM ET each day. But, a lackluster investor interest may create selling in the broader bond market and lead to slight upward afternoon revisions to mortgage rates.
©Mortgage Commentary 2018