A few different factors contributed to last week’s upward rate momentum. For once, economic reports were not the main cause. The first factor was the debt ceiling debate. The other was Fed member comments and the overall economic outlook. All of these factors contributed to bond market weakness, which oftentimes correlates to higher rates.
The debt ceiling debate doesn’t directly influence rate movement, but it can influence the bond market. “The most direct effect of the debt ceiling debate is a general ebb and flow of risk sentiment in the market,” writes Matthew Graham, COO of Mortgage News Daily. “If it’s resolved without issue, investors may be slightly more interested in buying stocks and selling bonds. The latter puts upward pressure on interest rates, and it was the general theme [last] week.”
Though some of last week’s rate momentum might have been attributed to the debt ceiling, “we really didn’t see any compelling evidence that traders were on the edge of their seats over political drama,” notes Graham. What captured the markets’ attention more was the Fed and the economic outlook. “Traders were more receptive to the slew of Fed speakers who echoed the same general sentiment: the fight against inflation is far from over and the data will determine when the Fed is done hiking rates.” At the beginning of the month, additional rate hikes seemed unlikely. Now, there’s almost a 50% chance of another 0.25% hike in June. So, right now all eyes are on Friday’s core personal consumption expenditures (PCE) index, which is the Fed’s preferred method of measuring inflation, and likely the biggest factor in determining next month’s rate hike.
Before we get to that, we have some important housing reports coming up this week including new home sales and pending home sales. Both are slated to increase in April. In March, new home sales soared 9.6% month over month while pending home sales, which gauge future closings, slipped 5.2% monthly.
If you have any questions about the upcoming reports or market movement, contact NextMortgage.