Sep 3 2014, 3:56PM
Mortgage rates started the day heading higher after overnight news of a potential ceasefire in Ukraine caused investors to quickly sell safe-haven assets. The mortgage-backed-securities (MBS) that dictate mortgage rates fall into this ‘safe-haven’ category along with US Treasuries. When investors are selling MBS, prices move lower and rates move higher.
As the day progressed, however, financial markets steadily backed away from the overnight momentum. Stocks weakened and bond market improved. There is an hour or two in the morning where MBS are trading before most lenders come out with rates for the day. Much of the overnight weakness was erased by then, allowing lenders to price fairly close to yesterday’s latest levels. As markets improved into the afternoon, several lenders released improved rate sheets, bringing the average even closer to ‘unchanged’ on the day.
4.125% remains the most prevalently-quoted conforming 30yr fixed rate for top tier scenarios. Today’s weakness would be limited to affecting closing costs. That means actual interest rate quotes shouldn’t change from yesterday–just a small adjustment to the upfront costs–if anything at all.
Tomorrow ushers in more volatility as one of the key near term events takes place. Much of the pervasive strength in mortgage rates is a direct result of European financial markets. Specifically, most investors see the European Central Bank (ECB) embarking on a sort of quantitative easing program bearing some similarities to “QE” in the US. The consensus is that this would happen by early 2015, but tomorrow brings one of the monthly meetings and press conferences from the ECB. This could be used as a venue to further the discussion on how a QE program might take shape. To whatever extent that discussion deviates from the market’s expectations, we could see bigger movement in rates, for better or worse.