Hey, it’s Mike Lynch with Amira first financial it’s time for your Monday morning mortgage update for the week of June the 20th. But it’s Tuesday today, the 21st, because yesterday the bond market was closed for a federal holiday and there was no reporting. So. Hope everybody had a great weekend.
Congrats all those fathers. I had a great weekend with my kids and my dad. We had a nice Sunday brunch and it’s the first day of summer today. So boy, we’ve had a nice mellow June, as far as weather goes, and now it’s heating up looking forward to that hot weather, getting out on the lake, getting out on the water.
So what happened last week and what’s happening this week, last week? Another not a great week. In fact, not a great week. In the last couple weeks for rates, the bond market sold off 71 basis points and that’s the mortgage backed securities market. Remember mortgage rates are determined by the trading of mortgage backed securities in that bond market.
So when they have less money flowing in that means mortgage rates go up. The other thing that happened the two big things that happened is number one, the federal reserve raised their fed fund rate. Three quarters of point. Now. When the federal reserve raises the fed fund rate, that does not have a direct impact on mortgages, the fed fund rate, which is what we all hear about in the news when the fed raises that every month and a half, that is the rate that banks charge each other to borrow money overnight.
And it affects auto loan rates, home equity line rates. It. The rate that businesses are charged to borrow money, so it increases their costs. And then the other thing that happened this week, last week was the Swiss bank raised their fed fund rate by a half a percent. And that was a surprise. Nobody expected that, and the bond market is more conservative than the stock market.
And people put their money in one of two places, either the safer bond market or the risk of your stock market and the bond market does not like surprises. So that was a surprise. That really what is, what drove the rates? Up last week in the last two weeks, we’ve seen the bond market sell off over 200 basis points and, and we’ve seen these rates really get worse in the last month a lot worse, but let’s put this in perspective.
Let’s talk about what’s gonna happen this week. And really some insight on what maybe we can see moving forward. So the three things we’re talking about this week are. The fed we’re talking about data and inflation. So let’s talk about the fed fed obviously met last week and this week, all those fed members are gonna talk to all the media and tell everybody what they think and what they think, what their projections are is, is meaningful.
And we are really gonna be listening to the fed chair and everybody else to see, do they have. Insight on their policy moving forward, because. Understand something, what the fed does impacts our economy raising that fed fund rate has impacted our economy. And so are they going to continue on the same path?
Why is the fed raising this fed fund rate to fight inflation? That’s it? They’re fighting inflation. It’s the number one. Thing that they have to focus on right now and they raise that fed fund rate. It’s their main tool to fight inflation. And if it works, then inflation’s gonna come down and we’re gonna see mortgage rates actually improve.
So that is key. The other thing the Fed’s gonna talk about is our quantitative tightening. Now I’ve talked about this over the last few months, and that means what is the fed doing on the back end? We know what quantitative easing is the fed. Buying mortgage back securities. They stopped doing that in March.
So they could fed the raise, the fed fund rate, and that caused mortgage rates to go up because they were buying less mortgage backed securities. The quantitative easing. But they also have talked about reinvesting in the bond market, quantitative tightening, and last week a report came out that said, Hey, they, they really haven’t backed off even though where they’re supposed to, they actually put more money on the back end.
So another report’s coming out Thursday to say, Hey, are they really. Acting on that quantitative tightening policy that they were gonna implement are the fed members gonna talk about this because if they change course and don’t reinvest and, and, and keep reinvesting on the back end, that actually could be good for rates.
So it just depends on how aggressive they’re gonna be in fighting inflation. Are they gonna buy more bonds or are they not gonna buy more bonds? So the second thing is inflation. The bank we’re gonna hear a lot of reports from a lot of the banks around the world. Bank of England, Japan, Switzerland European central bank, Germany, Canada, Australia.
What do their numbers look like? What does the global inflation look like? What’s their growth look like? Cause Hey, we’re in a global economy. So are their inflation numbers up? Is their growth slowing down. That really is going to impact investing in our bond market or not. And then the last thing is data.
A lot of data coming out Friday is a big day with the university of Michigan consumer sentiment report. So it’s been dismal the last couple reports. Is it gonna be another bad one? Basically this measures, how confident are consumers feeling about the economy moving forward? And this is a key sign of inflation coming down.
The path is when consumer sentiment is down and we’ve seen this be down the last few months. Also we’re gonna be looking at a 20 year bond auction. The, the federal government sells bonds and treasuries to raise money. And there hasn’t been a big appetite for bonds in the last few months. So, what is this bond auction gonna look like this week?
If there’s an appetite that means money of flowing into the bond market rates could get better, but we really don’t expect it to get better. The other question is why would investors wanna buy mortgage back securities? Right now? There’s a lot of thought that they’re, they don’t wanna buy ’em. They’ve been proving that because if we do see inflation peak in the fall, Which is some expectations then assuming that the federal reserve continues this course, and it has the wherewithal to, to really take some aggressive matters, to get inflation under control.
If we see it peak in the fall, we could see rates actually improve in the fourth quarter, moving into 2023. That is an estimate. And if we do that and these mortgage lenders buy these mortgage backed securities, knowing that if there’s an opportunity to refinance these higher rates in six months, why would they buy those?
If they can’t hang on to ’em long? That’s the thought. So just a really interesting dynamic happening in, in investing in that bond market mortgage back securities bar market. So what are we doing this week? Locking not playing with my client’s money, locking lot of volatility this week more risk for rates going up than actually improving.
That’s my advice. If you have anybody that needs advice, unlocking that loan, please let me know if you know, somebody could benefit this video. Please pass it on. If you have any insight on some information you’d like to see. Let me know, and I’ll include it. Have a prosperous week and we’ll talk to you soon.