Bond traders woke back up this past week and pushed rates higher early in the week, but bounced back Wednesday propelled by Fed speaker comments and a stronger than expected jobs report.
Check out my video above for an update on the past week’s movement and this week’s potential market movers.
Average 30 year conventional fixed rates for excellent scenarios with a 1 point discount charge are right around 6.125% (6.25% APR) with 15 year rates around 5.50% (5.625% APR). This is for an 800 credit score, $500k purchase and 20% down. These rates are lower compared to last week’s rates.
The health of the economy remains on the forefront following a stronger than expected payroll report last week as investors anticipate the Fed’s next move in December. There’s an 80% chance that central bank will hike rates by 50 basis points. Expectations of the future are the driver of mortgage rates.
The November PPI report released on Friday will be one of the main focuses this week as the market continues to look for signs of slowing inflation. The November CPI (Consumer Price Index) report will be released next Tuesday, just one day ahead of the Fed’s rate decision. Mortgage pricing printed slightly worse this morning than EOD Friday as equities opened in negative territory in early trading.
CPI Data comes out on December 13th–not quite Christmas, but close enough to ensure lower rates through the end of the year IF (and that’s a BIG “if”) it shows inflation continues to cool. Of course there’s a risk that rates move in the opposite direction if inflation bounces back up. Either way, the swings in underlying bond markets could be especially large as the Fed releases its next policy announcement on December 14th.
We know the Fed will hike rates, but they’ll almost certainly be hiking by a smaller amount than last time (unless inflation comes in hot). How can we be so sure? Many Fed speakers said so last week including Chairman Powell on Wednesday.
Rates responded by dropping sharply by Thursday morning, but the underlying bond market was having second thoughts by Friday morning owing to a strong jobs report. Officially called “The Employment Situation,” the government’s big jobs report is one of the only economic reports other than CPI that consistently registers a big response in the bond market (many reports move markets, but we’re talking about BIG reactions).
A strong jobs market ALLOWS the Fed to push rates aggressively higher, but it won’t prevent the Fed from slowing the pace of rate hikes if inflation continues to subside. Additionally, the Fed knows it has a certain amount of tightening “in the pipeline.” That means it has already hiked rates enough that inflation and the economy should increasingly respond, but that the response is far from immediate.
After all, rates may have moved sharply lower on 11/30 (this past Wednesday) and 11/10, but they’re still much higher than they had been. The overall altitude of rates still presents a headwind to economic growth. The Fed knows it. The market knows the Fed knows it. Long term rates should continue to fall if the December 13th inflation data brings more evidence of the Fed’s restrictive policies having the desired effect – lower inflation readings.