It’s been a turbulent few weeks for the mortgage rate market, making it tricky for potential homeowners to navigate. This morning, pricing may not be ideal, but it is still better than the reprices throughout the week. If rates drop tomorrow with the release of the Consumer Price Index (CPI) inflation data, they won’t fall back to the levels we saw earlier this month. With moderate reprice risk today – there are no major data sources to concern lenders – but an unpredictability in the effect of tomorrow’s CPI on the market makes it worth locking in your rate now rather than risk a rate change afterward.

These are the three areas that have the greatest ability to impact rates this week:

• Inflation: The highly-anticipated Consumer Price Index inflation data will be released tomorrow and markets are closely watching to see if it meets or exceeds expectations. If the inflation data disappoints, traders responding to the news may cause an increase in interest rates. Though a large decrease would be preferable, even a more moderate slowdown in inflation could still be enough to assuage investor concerns and prevent a large impact on rates throughout the economy. Despite potential volatility in the short term, investors should remain assured that any rate movements following the release of CPI data will likely not have a long-term significant change over financial markets.
• The Fed: After last week’s speeches from a number of influential Federal Reserve speakers, markets reacted to the increased expectations of more interest rate hikes and the mantra of “higher for longer” dominating monetary policy. Mortgage-Backed Securities (MBS) unsurprisingly responded by selling off, as this would mean higher financing costs for anyone looking to purchase or refinance homes. This week is set to be a busy one in terms of further insight from the Fed. Speeches from Bowman, Williams, Cook and Mester will provide the market with updated information on current trends within monetary policy which could help provide clarity about potential future hikes. Investors should pay close attention to these highly anticipated Fed spokespeople to keep up with any shifting indications regarding the direction of interest rates over the course of 2023.
• Domestic News: This week marks an important milestone for the US economy as key economic indicators will be released. Retail sales data, as well as manufacturing reports from the Philly Fed, Empire Mfg and Industrial Production will be reported, along with Capacity Utilization figures. These numbers are being closely scrutinized by economists to gain some insight into the health of the American economy and how it is performing. With these numbers, we can have a better sense of how consumer spending trends are holding up in comparison to production output in various sectors of the economy. It’s sure to be another interesting week of financial news!

Technicals:

The UMBS 5.5 coupon (MBS or mortgage backed securities) at 100.41, +8bps.

The 10yr Treasury yield at 3.72.