Mortgage Market Update – January 22nd, 2019
Recent Events Recap
Well, we are about 3 weeks into the new year, and Christmas Eve feels like a distant memory. I’m not talking here about the warm glow of the holidays, but the dramatic bludgeoning of stock prices that saw the Dow close lower by nearly 3%. Since then, risk assets have recovered nicely as investors have grown optimistic that representatives from the US and China are making some real headway on trade negotiations. As stock prices have risen, so to have Treasury yields. After a brief dalliance in the 2.50s, the 10yr Treasury yield is now about 20 basis points higher, behaving as one would expect in a risk-on environment.
So does the outlook for the global economy warrant this sanguine tone? I don’t know. Maybe I’m missing something, but I’m just not feeling it. China just released its GDP growth rate over the weekend and it came in at the lowest level in nearly 30 years. Of course, you could argue that this is just a function of the tariffs, and once the trade dispute is resolved the green shoots will return. But it’s not just China that is struggling. The International Monetary Fund recently lowered its growth outlook globally. Add to that the growing uncertainty around Brexit and the impact of this protracted government shutdown domestically, and at least for me, the optimism is risk markets seems a bit misplaced.
Economic releases will be light this week given that many come from government agencies currently closed due to the shutdown. We won’t be hearing anything out of Fed officials either since they are in blackout mode ahead of next week’s FOMC meeting. Incidentally, nobody expects them to raise fed funds at this meeting. I believe Treasury yields are poised to move lower, absent a big positive headline on trade. However, the rally in equities has removed one of the more technically bearish scenarios for stock indices and may perhaps temper a positive turn in Treasuries. Mortgage rates should still look really good here and sets us up well for a strong start to the spring season. Even though it is 19 degrees outside, it’ll be here before you know it. Have a good one, folks.
Head of Capital Markets, Southern Trust Mortgage