As we know, bond markets directly affect the mortgage market. Typically, when bond rates, also known as bond yield, go up, interest rates follow. Conversely, bond prices are a different animal and when bond prices rise, interest rates go down. When purchases of bonds increase, their associative yield falls, and thus, so do mortgage rates. When the economic outlook is uncertain, such as the climate post-Brexit and due to Asian and European markets uncertainty, investors tend to be more active in the buying bonds.

Bond markets started out this week with continuing sideways momentum; they are still waiting for the same events that will indicate the next concerted effort to take yields higher or lower just as they have been waiting since the Brexit event. The major difference this week is that those potentially impacting events are on this week’s calendar.

Important Upcoming Events

The events expected to carry the most¬†impact are the Fed Policy Announcement expected midweek from the Federal Open Market Committee (FOMC), the Bank of Japan’s Policy Announcement the end of the week and a plethora of lesser but important reports of economic data including the second quarter GDP data; as well as, new debt supply in the form of Corporate and Treasury Bond Auctions.

The Fed meeting is not expected to produce either a rate hike or any other substantial change in policy; but, it is expected to relay the tone and direction paving the way for a rate hike at the next meeting. Conventional wisdom lends itself to no rate hike or significant policy change being the most possible in view of the fairly tame ramifications of a Brexit fallout, and the most recent jobs report being so strong.

The Fed Funds Futures trading projects a 2% chance of a rate hike this week and a 26% chance for a hike at the next meeting due in September. This week will also see new bonds hitting the market in the form of two, five and seven-year Treasury auctions and Corporate Bonds. More bonds could bring more purchasing or higher prices, either would directly impact interest rates.

Japan’s Influence

Any or all of these events should, conceivably, be enough to break the sideways trend. However, momentum indicators are noncommittal as to which direction will benefit. The bond market is expecting a significant impact from the Bank of Japan if it includes a rate cut and additional asset purchases. The expectation for a more robust stimulus package in Japan is so widespread that the Bank of Japan is risking major disappointment from the global markets if it fails to act in a decisive manner.

There is, indeed, a lot riding on the events enveloping the financial markets this week.

This Week’s Mortgage Rate Summary

Rates Trending: Above Neutrality leaning to Volatility

No matter the changes or lack of change from the Fed, the Bank of Japan, or the data reported in the Second Quarter GDP publication or even the introduction of more bonds to the market, this week will produce enough new information and product to move the mortgage market from its recent static condition. Whether that movement is up or down remains to be seen.

The Bottom Line: Up or down, no one really knows; but, you can expect some movement in interest rates will happen. If you are seeking to purchase or refinance, contact your lender now; as rates hover, it becomes more important to discuss and lock your rates with your lender. Experts agree rates are poised to move at any moment.

If you would like more information, or to speak with one of our knowledgeable mortgage bankers, please call us at (972) 591-3097.