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Mortgage rates have declined sharply in the new week, after hitting their highest level in several months last Friday. As the bond market improved this afternoon, many lenders were able to make mid-day adjustments. This brought the average top tier 30yr fixed rate to its lowest level since Thursday, May 18 (not quite 2 weeks, but close enough!).
The attribution of rate reversal is multidimensional. The move began in Europe where friendly inflation data prompted an even sharper drop in rates. As is often the case, European rate movements have an impact on US rate movements.
As the debate over the debt ceiling progresses, traders are feeling more confident about re-entering the market for US Treasuries – the foundation of interest rates in the US.
However, if there is one important conclusion, it is that the next big move for rates will remain up for debate. The upcoming economic report will set the tone for the Fed meeting in 2 weeks. Several Fed officials commented that they were considering “abandoning” a rate hike at the upcoming meeting. Others have recently said they would like to hike again. Based on the data, both sides of the debate may change their mind by June 14.
The Fed doesn’t directly set mortgage rates, but when a Fed rate hike is hotly debated, the Fed’s decision can have a larger impact than usual. Furthermore, the market will be trying to adjust to what it perceives as the Fed’s likely course of action based on the outcome of economic reports between now and then. The only surefire bet is for greater volatility. It has been a favorable volatility so far this week.
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