Mortgage bond prices finished the week sharply lower which put significant upward pressure on mortgage interest rates. Rates were higher the beginning of the week as stocks surged higher amid optimism that the US/China trade tariffs would soon end. Commerce Secretary Ross said they are making progress on “Phase One” of the trade deal. There were some reports that the tariffs could be dropped before a deal was completed. Factory orders fell 0.6% versus the expected 0.4% decline. The trade deficit was near estimates at $52.5B. Preliminary Q3 productivity fell 0.3% versus the expected 1% increase. Weekly jobless claims were 211K versus the expected 217K. Consumer sentiment came in at 95.7 versus the expected 95. Mortgage interest rates finished the week higher by approximately 5/8 to 3/4 of a discount point.
Trading This Week
Market conditions that often lead to mortgage interest rate volatility are thin trading and shortened trading weeks. If very few market participants are buying and selling bonds, the potential for short-term volatility is escalated. A large buyer or seller can execute trading orders that, without additional traders to buffer out the extreme buying or selling, can lead to swift market movements. In addition, shortened trading weeks have the potential to compress a week’s worth of trading into fewer days. Bond traders often take defensive positions ahead of weekends and holidays to guard against unforeseen events that could possibly jeopardize their investments. This positioning can be beneficial or detrimental to mortgage interest rates. If investors sell stocks and buy mortgage-backed securities, mortgage interest rates will improve. However, if investors sell mortgage- backed securities and hold cash positions, mortgage interest rates will rise.
Holidays can often result in volatility as trading resumes following the extended close. This week could result in market swings that are favorable or negative in nature. Considering the heightened possibility for mortgage interest rate volatility, a cautious approach to interest rate exposure is prudent. Be cautious heading into the data.