Mortgage Rate Watch
Mortgage Rates Much Lower So Far This Week

Mortgage rates ended the previous week with a hopeful outlook due to the omicron variant.  In general, rates benefit from news and events that cause investors to seek protection from risk.  A fresh dose of risk aversion was served up overnight as Moderna's CEO said he expected vaccine efficacy to be lower against the new variant.  Those headlines sent stock prices and bond yields lower.  When bond yields are lower, lenders are typically able to offer lower mortgage rates, all other things being equal. 

Indeed, today's initial rate sheets showed strong improvements from yesterday.  The average lender was offering the lowest rates in nearly 3 weeks.  But things changed around 11am.  In a congressional testimony, Fed Chair Powell's comments on inflation and bond buying pushed the bond market back in the other direction.  Mortgage-backed bonds lost all of the day's improvements and most lenders made mid-day adjustments higher in rate. 

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Rates Move Swiftly Lower Due to New Covid Variant

Just when it looked like the current week would fizzle out on a negative note for rates, our least favorite market mover is back in the news. 

B.1.1.529 (designated now as "Omicron"), a new covid variant hit the market like a ton of bricks on Friday morning.  48 hours earlier, Google had never heard of it.  Search interest began to ramp up on Thanksgiving Day.  By Friday, it's an utterly pervasive headline.

With financial markets closed for Thanksgiving, there was an abrupt reaction upon reopening for the half-day on Friday.

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Highest Mortgage Rates Since April

Mortgage rates continued higher today as the bond market remained in a defensive stance for a variety of reasons.  The week's scheduled Treasury auctions were among those reasons, but rates remained under pressure even after today's final auction.  That means traders are still nervous about upcoming events.  With markets closed on Thursday and effectively closed on Friday, the focus is on tomorrow by default.  

The morning's biggest potential source of volatility will be the PCE inflation data at 10am ET.  Then in the afternoon, the Fed releases the minutes from its most recent meeting.  There is some speculation that the minutes will include a more robust discussion about hiking rates in 2022--something that hadn't really been on the radar until recently. 

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Mortgage Rates Under Pressure After Powell Nomination and Bond Auctions

Mortgage rates began the new week on a bad note with the average lender full erasing the improvement seen on Friday.  This leaves many lenders at their highest levels since April, but in those cases, it should be noted that today's rates are extremely close to those seen in late October.  In other words, we're essentially back in line with the highest levels in more than 7 months.

In outright terms, the average lender was closer to 3.125% on a top tier conventional 30yr fixed scenario.  Today, they'd be closer to 3.25%.

The rate spike was driven by bond market weakness.  This will almost always be the case for any rate spike as rates are primarily determined by the bond market.  Bonds were reacting to a combination of challenges.  The first was the re-nomination of Jerome Powell as the Chair of the Federal Reserve.  While this was widely expected, the market was entertaining some chance of Fed governor Lael Brainard taking his place.  Brainard is viewed as more rate-friendly.  As such, the Powell nomination was a negative development this morning.  

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Winter is Coming, But That's Good For Rates

Winter is coming, both literally and figuratively. While the fallout remains to be seen, financial markets are already reacting.

In the literal sense, colder ambient temperatures are generally correlated with increased covid case counts.  The following chart shows per capita covid hot spots juxtaposed with a low temp map from 2 weeks prior.

Market participants aren't necessarily epidemiologists, but the correlation is simple enough for the average trader to act upon.  In this sense, the market is pricing in the metaphorical winter of a slower global economy due to covid-related lockdowns (or other measures that inhibit the free flow of business).

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