This week has no important monthly or quarterly economic reports set for release. It is a very light week in terms of events scheduled that are likely to influence mortgage rates. We do have a couple of Treasury auctions taking place mid-week that often do affect rates though.
There is nothing set to take place tomorrow or Tuesday. The first scheduled event will be the first of the two important Treasury auctions Wednesday afternoon. 10-year Treasury Notes will be sold Wednesday, followed by 30-year Bonds Thursday. Wednesday's auction is the more important of the two as it will give us an indication for demand of mortgage-related securities. If the sales are met with a strong demand from investors, we should see the bond market move higher during afternoon trading the days of the auctions. But a lackluster interest from buyers, particularly international investors, would indicate a waning appetite for longer-term U.S. securities and lead to broader bond selling. The selling in bonds would result in upward afternoon revisions to mortgage rates.
The lack of relevant data won’t necessarily prevent us from having an active week for mortgage rates though. It will be interesting to see which direction stocks head after Friday’s 665-point loss in the Dow and 144-point drop in the Nasdaq. Unfortunately, bonds did not benefit from that selling, posting losses of their own that drove the benchmark 10-year Treasury Note yield up to 2.85%. That is its highest level in over 4 years. By theory, if stocks are dropping, bonds should rise, driving yields and mortgage rates lower. We did not see that Friday after January’s Employment report was posted. If stocks continue to slide though, I think we will see bonds and mortgage rates benefit to some degree. This is because an extended stock sell-off should create a flight-to-safety scenario where investors shift funds into bonds to escape the stock volatility. We will be watching the correlation between stocks and bonds closely until the markets stabilize.
Overall, Wednesday is the best candidate on paper for most active day for rates but tomorrow could also be volatile if Friday’s momentum carries into the new week. Any day could be the calmest, although I suspect the quietest day will come later in the week. Look for stocks to be in focus this week. Of particular interest will be the Dow's ability to stay above 25,000, which is more of a psychological threshold than a technical resistance point. Despite a light calendar, we still may see another active week for the markets and mortgage rates. Therefore, it is prudent to maintain contact with your mortgage professional if floating an interest rate and closing in the near future.