Market Update - August 7th, 2023
U.S. Treasury Pushes Rates Near 23-year Highs
It was a roller coaster week for the mortgage world as rates worsened on each given day from Monday to Thursday. A flurry of positive economic reports coupled with new details of the U.S. Treasury needing to increase their borrowing needs was the main culprit for pushing rates higher. Treasury debt issuance matters as Treasuries are one of the most important determining factors for moving interest rates. On Wednesday, it was announced the Treasury intends to increase the issuance of longer-term bonds in the coming months. This move is in response to the mounting borrowing needs of the US government, which are a direct result of the continuous ballooning of the federal debt.
We need to remember that Bond prices have an inverse relationship with mortgage rates. The more Treasury Bonds that are issued, the lower the price of the Bonds. As Bond prices go down, mortgage interest rates go up and vice versa. As a result, we saw mortgage rates increase to near 23-year highs with the announcement of the increased debt issuance.
Key Takeaway: Mortgage rates and bond prices have an inverse relationship. With the US Treasury increased debt issuance, bond prices have been declining. As bond prices decrease, mortgage interest rates increase, as was evident by the events of last week.
Rates Improve on Friday’s Jobs Report
After getting kicked in the teeth all week, we finally found some relief as mortgage rates improved on Friday, thanks to the Jobs Report. The report showed that only 187,000 new jobs were created, falling short of the expected 200,000. This is good news for us in the mortgage world as it is a clear indication that the economy is slowing.
The Federal Reserve’s main objective in raising rates is to cool down the overheated economy and to manage inflation. The recent slowdown in job growth indicates that their rate increases are starting to have an impact on the economy. However, we’ll need many more similar reports to observe a significant decrease in mortgage rates.
Key Takeaway: The weaker jobs report was a blessing for mortgage rates as it completely erased the gains we observed from Monday to Thursday. As the week came to a close, mortgage rates remained unchanged, holding steady compared to the previous week.
CPI Inflation Data Being Released on Thursday
The all-important CPI Inflation data will be released this Thursday, August 10th. The CPI inflation data is our best chance to see rates continue to improve in the short term. The last CPI report reflected a sizable drop in inflation, which was good for mortgage rates. However, for the market to remain confident, we need to see this lower inflation trend continue for several months. If inflation is lower than expected this time around, it would be an excellent sign for us all as it will help push interest rates lower after reaching near record highs last week.
Key Takeaway: A lower inflation reading on Thursday will most likely lead to a drop in mortgage interest rates. A higher-than-expected reading will likely lead to mortgage rates increasing.
Instagram Posts from Last Week
Don’t hesitate to reach out if you need anything at all. Have a wonderful week!