|Sentiment Remains High|
|Last Friday’s Employment report left investors feeling good about buying bonds, and mortgage rates improved over the first half of this week. An announcement from President Trump on Thursday was negative for bonds, however, and a partial reversal took place. After a couple of weeks with relatively little net change, mortgage rates ended this week a little lower.|
|The much weaker than expected wage growth in the Employment report released on February 3 eased investor concerns about future inflation. Lower inflation increases the value of future cash flows from bonds. With little economic news early in the week, investors purchased bonds, including mortgage-backed securities (MBS). Since mortgage rates are set based on MBS prices, rates declined.|
|On Thursday, President Trump said to expect an announcement about tax cuts in two to three weeks. Mortgage rates moved a little higher after the comment. There are a couple of reasons why tax cuts are viewed as negative for mortgage rates. The first is that tax cuts increase the wealth of the affected individuals or businesses. As they spend some of this money, it boosts economic activity, which in turn raises the outlook for future inflation. The second reason is that tax cuts increase the budget deficit, at least initially. This means that the government has to issue more Treasury bonds to fund the deficit. The added supply reduces the value of bonds, including MBS.|
|Looking ahead, Retail Sales will be released on Wednesday. Consumer spending accounts for about 70% of economic output in the U.S., and the retail sales data is a key indicator. The Consumer Price Index (CPI), a widely followed monthly inflation report, also will come out on Wednesday. CPI looks at the price change for goods and services which are purchased by consumers. Housing Starts will be released on Thursday. In addition, Fed Vice Chair Fisher will be speaking on Saturday morning, and Fed Chair Yellen will deliver her semi-annual testimony to Congress on Tuesday and Wednesday.|
>> View the article online here: http://www.mbsquoteline.com/newsletter/view/245/21342/0/3
The views expressed are my own and do not necessarily reflect the views of my employer.
Visit my website at: www.juliecnichols.com or contact me with any of your home loan questions.